MEALEY'S
Attorney Fees
February 2001, Vol. 3, #7
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An
Auction Fee System Used In $537 Million New York NEW YORK — The auction system used to select plaintiffs’ lead counsel in the price fixing class action against renowned auction houses Christie’s International PLC and Sotheby’s Holdings Inc. brought plaintiffs hundreds of millions more and their lawyers tens of millions less than each would have earned under the traditional methods of lead counsel selection, the trial judge told attorneys Feb. 2 (In Re: Auction Houses Antitrust Litigation, No. 00 Civ. 6322, S.D. N.Y.). A proposed $537 million settlement agreement awaits approval from the U.S. District Court for the Southern District of New York. The settlement figure includes $125 million in sellers’ coupons provided by the auction houses. Under the terms of the proposed agreement, the certificates can be applied to sellers’ commissions or certain consignment-related costs, or can be redeemed for cash after four years. Judge Lewis A. Kaplan fine-tuned the lead counsel auction system, which is currently being used by judges in class actions. Kaplan’s system was designed to minimize conflicts between the interests of the class and those of the plaintiffs’ attorneys. The formula called for counsel to submit bids based on a figure that represented an amount to go entirely to the plaintiffs, with 25 percent of any recovery over that bid to be awarded in attorney fees. Any settlement less than the bid amount would go entirely to the class with counsel receiving no fees. The successful bidder was responsible for absorbing all litigation expenses. System Lowered Fees The highest bid submitted among 21 law firms was $405 million submitted by two firms, including Boies, Schiller & Flexner in Albany, N.Y., which ultimately prevailed in the auction process. If there are no changes in the proposed settlement agreement, David Boies’ firm stands to earn $26.75 million for its lead role. Judge
Kaplan said the average bid submitted by the competing firms was $130
million. A $130 million bid coupled with the $537 million settlement
negotiated by Boies’ firm would have earned counsel $95.4 million
in fees. Among the firms that served as interim lead counsel, the average
bid was $96 million, which would have resulted in $104 million in fees
provided the same settlement was obtained. Counsel David Boies and Richard B. Drubel of Boies, Schiller & Flexner in Albany, N.Y., served as lead counsel for the class plaintiffs. Shepard Goldfein and Clifford Aronson of Skadden, Arps, Slate, Meagher & Flom in New York represented Christie’s International PLC. Steven D. Reiss and David Lender of Weil, Gotshal & Manges in New York represented Sotheby’s. Auction
system order available
California
Governor SACRAMENTO, Calif. — The State of California is suing to block an $88.5 million fee award to attorneys who successfully sued the state over its illegal smog impact fees (California v. Arbitration Panel and Anna Jordan, et al., No. 01CS00073, Calif. Super., Sacramento Co.). California Attorney General Bill Lockyer filed a writ of mandate Jan. 17 in the Sacramento County Superior Court seeking to strike or reduce the state’s payment to five law firms. The $88.5 million award represents the largest ever levied against the state. The suit follows an unsuccessful attempt by Lockyer’s office to convince an arbitration panel to reconsider its award. The writ application also follows a December decision by the California Board of Equalization to freeze payment to the firms until a court can decide how much money the firms are entitled. “The award is excessive and goes well beyond any notion of a reasonable fee for the attorneys’ effort,” Gov. Gray Davis said in a prepared statement. “The arbitrations panel’s decision constituted a windfall for the attorneys. At best they were entitled to $18 million. The court must now act to overturn this outrageous award.” Award Must Be Overturned The attorney general argues that the award must be vacated pursuant to California Code of Civil Procedure 1286.2. The state says that the arbitration panel’s decision was facially unlawful because the decision exceeded the panel’s powers and the award cannot be corrected without affecting the merits of the panel’s decision. The state says the award granted relief that plaintiffs’ counsel could not have obtained had they prevailed through all of their appeals. The state claims the fee award was almost five times in excess of the arbitration panel’s jurisdictional limit. “The panel was empowered only to settle a maximum $18 million dispute then pending in the Court of Appeal, but instead: disregarded that mandate; acted as if there were no limits; and employed an analysis that was both legally and factually flawed,” the state argues. “The award fashions an irrational remedy that creates an effective hourly billing rate so high — $8,800 an hour — that no lawyer could actually charge and collect it without running afoul of Rule 4-200 of the Rules of Professional Conduct.” The state further argues that any such award would be an unconstitutional use of public funds. Arbitration experts contend the appeal will likely hinge on the interpretation of the California Supreme Court’s decision in Moncharsch v. Heily & Blasé (3 Calif. App., 4th Dist., Div. 1). The decision is widely held to limit review of an arbitration panel’s decision unless there is misconduct, bias or fraud. Underlying Action In 1995, plaintiffs began an action contesting the legality of California’s 1990 enactment of the Non-Resident Smog and Impact Fee. The statute imposed a $300 fee for each out-of-state vehicle that became registered in the state of California. In addition to seeking declaratory relief that the fee was unconstitutional, plaintiffs sought reimbursement for wrongfully collected unconstitutional fees. They also sought class action status for all persons who had paid the fee within the applicable three-year statute of limitations. The trial court declared the fee to be unconstitutional and granted plaintiffs’ request for 5 percent of the $363 million class award, or approximately $18.2 million. The trial court’s award of quasi-class relief was reversed on appeal. The appellate court ruled that the trial court had exceeded its jurisdiction by ordering relief on behalf of persons not party to the plaintiffs’ action. The reversal meant the only monetary relief obtained was the $1,200 refunded to the four original plaintiffs. The California Legislature later passed a law providing refunds for anyone who paid the fee regardless of whether they had initiated legal action. An arbitration panel was later established to determine what fee award was proper. Counsel California Deputy Attorney General Peter Siggins and Edward Lui of Jones, Day, Reavis, & Pogue in Los Angeles represent the State of California. The following law firms are designated to receive portions of the fees awarded by the arbitration panel: Milberg, Weiss, Bershad, Hynes & Lerach in Los Angeles; Weiss & Yourman in New York; Sullivan, Hill, Lewin, Rez & Engel in San Diego; Blumenthal, Ostroff & Markham in La Jolla, Calif.; and Richard Pearl in San Francisco. Writ
of mandate available
Attorney
Fees May WASHINGTON, D.C. — A change in the interpretation of the federal labor guidelines regulating law firms’ representation of company management in labor disputes could force full disclosure of the money paid to law firms for their legal services. The Clinton administration made an 11th hour interpretation change to the Labor-Management Reporting and Disclosure Act of 1959 on Jan. 11. Under the new guidelines, anyone, including a lawyer, who produces documents and other materials to help a management client in an ongoing labor dispute will be required to disclose to the federal government the names of all management-side clients and the money the firm has been paid to represent the company. Willful failure to disclose the information could carry criminal penalties. Under the previous interpretation of the labor regulations, law firms representing management were effectively exempt from such disclosures. Battle Looms The regulation change is setting up a heavyweight battle between organized labor, which favors the change, and the legal community. Organized labor contends that the new interpretation will cut down on behind-the-scenes abuses by outside consultants and law firms brought in to “bust a union.” Attorneys counter by saying the revised interpretation is an infringement on the attorney-client relationship. It is uncertain whether the Bush administration’s 60-day moratorium on regulations passed in the waning days of the Clinton administration applies because the change is not a new regulation. Further uncertainty remains as to whether the new administration will uphold the new interpretation or try to delay or rescind it. No matter which direction newly confirmed U.S. Labor Secretary Elaine Chao and the Bush administration take, a lawsuit from either side will likely follow. Federal regulations currently require unions to reveal how much money they collect in dues, where it is spent and what union officers are paid. Disclosure requirements for employers have historically been much less restrictive. Rules Narrowly Interpreted Since the disclosure act became law in 1959, the disclosure rules have been narrowly interpreted by the federal government. Under the old rules, only management consultants brought in to address company employees directly about the drawbacks of unions were required to file financial disclosures. The new interpretation significantly narrows the advice exemption. Law firms, which frequently draft memos, letters, speeches, and prepare videotapes for their clients to help them convey a message that questions the benefits of a union, will no longer be able to prepare such material. Advice will have to be limited to reviewing drafts the client writes, or else counsel will be required to report their firm’s financial details.
Magistrate
Denies NFL’s NEW YORK — A motion by the National Football League to recover $554,000 in fees as part of a successful copyright action against a Canadian broadcaster’s illegal transmission of NFL games was denied by a U.S. magistrate judge on Feb. 5 (National Football League v. PrimeTime 24 Joint Venture, No. 98 Civ. 3778, S.D. N.Y.). U.S. Magistrate Judge Andrew J. Peck said the Canadian satellite service PrimeTime 24 Joint Venture litigated a copyright issue on the game telecasts based on a case from the Ninth Circuit U.S. Court of Appeals that was later rejected by the Second Circuit. Judge Peck said Prime Venture’s reliance on a Ninth Circuit decision (Allarcom Pay Television Ltd. v. General Instrument Corp. (69 F.3d [9th Cir. 1995]) was not asserted in bad faith nor objectively unreasonable. If Judge Peck’s ruling is adopted by U.S. Judge Lawrence McKenna of the Southern District of New York, the NFL would be denied the $554,231 in fees it had sought to recover. Copyright Violation The NFL sued the Canadian broadcaster in 1998, charging that PrimeTime retransmitted copyrighted football telecasts to Canada and thus exceeded the statutory license for U.S. retransmissions under the Satellite Home Viewer Act (SHVA). The SHVA allows delivery of network programming to households with no cable television or weak over-the-air reception, but precludes retransmission outside the United States. PrimeTime had argued it did not believe the U.S. copyright laws applied to transmissions in Canada. Although Judge Peck denied the NFL’s request for fees, he did recommend an award of $2.5 million in statutory damages be given to the professional sports league. Judge Peck said the award was because the defendant continued to transmit games after Judge McKenna had rejected a defense motion to dismiss and granted summary judgment to the NFL while an appeal was pending. Reckless Conduct Judge Peck said PrimeTime’s conduct by transmitting 18 NFL games in September and October 1999 constituted a reckless disregard for Judge McKenna’s earlier ruling in favor of the NFL. “PrimeTime was aware that NFL game telecasts were copyrighted by the NFL, and PrimeTime further knew the NFL’s position that PrimeTime’s transmissions to Canada constituted copyright infringement. PrimeTime’s reliance on the advice of counsel and on the Ninth Circuit Allarcom decision became unreasonable after Judge McKenna’s March 1999 decision denying PrimeTime’s motion to dismiss,” Judge Peck said. Judge Peck said although Judge McKenna’s decision “effectively demolished” PrimeTime’s legal theory, the company proceeded with “business as usual” and continued to broadcast games even though its counsel had advised it of the potential for a summary judgment in the NFL’s favor. “While PrimeTime obviously had the legal right to continue the litigation and appeal to the Second Circuit, it knew or recklessly disregarded Judge McKenna’s decision on the motion to dismiss [that] sounded the death knell for PrimeTime’s legal defense,” Judge Peck said. “PrimeTime’s conduct clearly demonstrated chutzpah, or in more legal parlance willfulness.” ‘Innocent’ Infringements PrimeTime had argued that it reasonably believed that the infringements did not violate the Copyright Act and therefore the infringements were innocent, requiring that the company pay only minimal damages of $200 per infringement under 17 U.S. Code Sections 504(a)(1)-(2) and 504(c). Judge Peck disagreed, saying that the use of the innocent infringer damage reduction applies to cases in which the defendant proves it was aware of the plaintiff’s copyright and upon becoming aware immediately ceased its infringing conduct. Neil K. Roman of Covington & Burling in Washington, D.C., and Eric Seiler of Friedman, Kaplan, Seiler & Adelman in New York represent the NFL. Brandon F. White of Foley, Hoag & Eliot in Boston and Roger L. Zissu of Fross, Zelnick, Lehrman & Zissu in New York represent PrimeTime 24 Joint Venture. Opinion
available
New
York Law Association NEW YORK —The New York County Lawyers’ Association (NYCLA) can proceed with the merits of its constitutional challenge of the State of New York’s system of compensating lawyers assigned to represent children and indigent adults, a state judge held Jan. 16 (New York County Lawyers’ Association v. The State of New York, No. 102987/00, N.Y. Sup., N.Y. Co.). The law association contends the state’s system of assigning private counsel is on the brink of collapse due to outdated compensation limits. The NYCLA further contends the state has “allowed the assigned counsel program to deteriorate to a point where it subjects children and indigent adults to a severe and unacceptable risk where meaningful and effective legal representation is no longer provided.” Third-Party Standing New York County Supreme Court Justice Lucindo Suarez denied the state’s motion to dismiss. Justice Suarez confirmed NYCLA’s right to third-party standing. “Denying NYCLA standing to sue would erect an impenetrable barrier to any judicial scrutiny of legislative action or inaction in this case, where presumptively innocent citizens are subjected to increased risks of adverse adjudications and convictions merely because of their poverty,” Justice Suarez ruled. The judge did, however, reject NYCLA’s stated cause of action. Justice Suarez said she found no ground for the tortious interference with contract claim, saying there was no contractual relationship between the City of New York and the NYCLA. “NYCLA’s obligation pursuant to court rules to provide a list of competent attorneys, coupled with its status as an original drafter of the Assigned Counsel Plan, does not establish a contractual relationship,” Justice Suarez said. “There was no bargain for exchange between the parties here.” Compensation Rates As enacted in 1965, New York County Law Section 722-b set compensation rates for assigned counsel at $15 per hour for in-court time and $10 per hour for out-of-court time, with monetary caps of $500 and $300, respectively, for felony and misdemeanor representation. Since they were enacted, the compensation rates have been adjusted twice and now stand at $25 per hour for out-of-court work and $40 per hour for in-court work. There is a monetary cap of $800 for all misdemeanor and family court cases and $1,200 for felonies and appellate matters. Compensation is excess of the fee limits may be obtained from the trial court under “extraordinary circumstances” which are not subject to judicial review. The current rates have been in place since 1986. The NYCLA claims that the current rate of compensation coupled with a severe shortage of assigned counsel cause harm and injury to NYCLA members who serve as assigned counsel. The law association maintains the system causes judges and court officers to pressure assigned counsel to accept additional case assignments despite an already heavy caseload and high caseloads impair counsels’ ability to effectively represent their clients, exposing them to possible sanctions. Defense Argument The state sought to dismiss the claims, contending that the NYCLA lacks organizational and third-party standing to raise them as it seeks a declaration of the rights of its members’ clients and potential clients. The state further stated that the complaint demonstrates nothing more than a speculative injury or risk to the clients’ rights. “The NYCLA is not the proper organization to assert the constitutional rights of the individual and potential clients, particularly claims involving the ineffective assistance of counsel because its members may have a direct conflict with those rights,” the state argued. The state further argued that Gov. George Pataki was not the official whom the Legislature had designated responsibility to implement the provisions of the challenged statutes and should not be included as a necessary party. The state said the challenge interferes with executive and legislative discretion and is not subject to judicial review. New York Must Defend Justice Suarez denied all defense motions with one exception. The judge found that Gov. Pataki was not the proper party to the action and removed him from further proceedings. The judge said there was insufficient evidence to connect the governor with the alleged unconstitutional conduct. The judge said she found the state’s argument that sustaining NYCLA’s claims would require an order directing the expenditure of state funds and impose judicial review of the Legislature’s refusal or present reluctance to amend present compensation levels “unconvincing when uttered in response to a claim that existing conditions violate an individual’s constitutional rights.” Davis, Polk & Wardwell of New York is representing the NYCLA. Opinion
available
2nd
Circuit Vacates Fees NEW YORK — A district court judge exceeded his discretion in awarding $813,724.25 in attorneys’ fees to HyperLaw Inc. based on a finding that West Publishing Co. violated Section 403 of the Copyright Act and acted in bad faith during litigation of a copyright action, the Second Circuit U.S. Court of Appeals ruled Jan. 23 (Matthew Bender & Co. Inc., et al. v. West Publishing Co. Inc., et al., Nos. 00-7029[L] and 00-7070 [XAP], 2nd Cir.). The appeals court vacated the award and remanded to the U.S. District Court for the Southern District of New York, finding it unclear whether the court relied on other factors in making the award. Works Don’t Infringe Judge Martin entered the fee award for HyperLaw after the Second Circuit held in November 1998 that works produced by HyperLaw and Matthew Bender Inc. do not infringe copyrights held by West. [Editor’s Note: Both Matthew Bender Inc. and Mealey Publications are owned by LEXIS-NEXIS.] Specifically,
the appeals court held in two separate opinions that the use of “star
pagination” by Bender and HyperLaw did not infringe West’s
copyrights in judicial opinions (No. 97-7430) and that enhancements
made by West to judicial opinions were not copyrightable (No. 97-7910). Summary Judgment Judge Martin entered summary judgment for Bender and HyperLaw on the star pagination issue; after a bench trial, the judge found the West enhancements insufficiently creative to warrant protection under the Copyright Act. The Second Circuit affirmed on both counts in two separate 2-1 rulings. HyperLaw then moved to recover its attorneys’ fees as a prevailing party under Section 505 of the Copyright Act. Judge Martin granted the motion, finding that West’s failure to comply with the notice provision set forth in Section 403 of the Copyright Act and its refusal to cooperate in HyperLaw’s “efforts to obtain a judicial resolution” warranted a fee award. The parties filed cross-appeals. West appealed the fee award; HyperLaw argued that the judge erred in his calculation of the fees. Objective Reasonableness Reversing and remanding, the Second Circuit held first that the lower court erred in failing to make a clear finding on the issue of the objective reasonableness of the positions taken by West during the litigation. “We are uncertain why the District Court did not clearly address the issue because it is beyond dispute that West’s arguments at trial were objectively reasonable,” the panel said. “Both the editorial enhancements appeal and the star pagination appeal provoked vigorous dissenting opinions agreeing with West’s opinions. Moreover, the Eighth Circuit has ruled in West’s favor in a substantially similar star pagination issue. We hold, therefore, that West’s positions in this litigation were objectively reasonable.” Section 403 Moreover, the panel said, Judge Martin’s interpretation of Section 403 conflicts with the statutory language, which provides that in the case of works consisting predominantly of government material, the failure to provide the form of notice specified in the statute allows an alleged infringer to assert an innocent infringer defense and mitigate his damages. The lower court interpreted Section 403 as prohibiting West from asserting a limited copyright in a predominantly government work without specifically identifying the portions that are not subject to copyright. “The District Court’s interpretation of Section 403 conflicts with the statutory text, which . . . says nothing about prohibiting the assertion of copyright,” the Second Circuit said. “In support of its interpretation, the court invoked the legislative history of section 403, which observes that the section is aimed at the practice of publishing a government work commercially after adding ‘some new matter in the form of an introduction, editing, illustrations, etc., and . . . includ[ing] a general copyright notice in the name of the commercial publisher.’ “However, while this history certainly reveals the impetus behind the legislation, it does not suggest that a publisher can be said to have ‘violated’ section 403. A plain reading of the section demonstrates that the sole consequence of failing to provide sufficient notice is that an alleged infringer may mitigate his actual or statutory damages by asserting the innocent infringement defense.” West’s Conduct The court also found no basis for a fee award in West’s pre-suit or litigation conduct. “First,” the panel said, “as a party confronted by a suspected or potential infringer, West did not act unreasonably by refusing to cooperate with HyperLaw before the initiation of suit. Assuming West legitimately believed that its products were protected — a reasonable belief, in light of the previous court decisions on the same issue — it had no duty to ‘recognize that there was an open question concerning its right to assert copyright protection in court opinions’ and had the right vigorously to challenge any actions by HyperLaw that might infringe on its copyrights.” In addition, the court said, the only litigation misconduct identified by the court is West’s filing of a motion to dismiss under Federal Rule of Civil Procedure 12(b)(1) — something the lower court interpreted as an effort to prevent judicial resolution of the action. “We do not agree that this is a proper basis for an award of attorneys’ fees under the Copyright Act,” the panel said. “The District Court’s award essentially punishes West for availing itself of a right provided by the Federal Rules, namely, moving to dismiss the plaintiff’s complaint. To allow fees on this basis would be to deter the exercise of rights afforded to litigants in federal court.” HyperLaw is represented by Carl J. Hartmann III of New York, Paul J. Ruskin of Douglaston, N.Y., and Alan D. Sugarman of New York. West is represented by James F. Rittenger and Joshua M. Rubins of Satterlee Stephens Burke & Burke in New York. Opinion
available
Rules
Of Conduct INDIANAPOLIS — An attorney’s violation of the Indiana Rules of Professional Conduct by accepting $21,000 in client payments without informing his law firm did not damage the client nor affect the quality of professional service provided to the client, an Indiana appeals court held Jan 18 in affirming an award of $970,261.75 in fees (Ralph S. Major Jr. v. OEC-Diasonics, Inc., No. 50A03-9910-CV-392, Ind. App., 3rd Dist.). In 1998, Ralph S. Major Jr. won a $3.1 million judgment against his former employer OEC-Diasonics for breach of contract. In 1969, Major negotiated a 30-year contract to sell orthopedic devices for a company that subsequently became two companies: OEC-Diasonics and Biomet. Upon termination of his employment in 1986, Major sued both companies alleging breach of contract. Contingency Fee Attorney Robert Mysliwiec, formerly of the law firm Jones, Obenchain, Ford, Pankow & Lewis, agreed to take Major’s case with a contingency fee of one-third of the gross recovery, with Major to pay out-of-pocket expenses. No written agreement between the parties was ever executed. After the judgment against OEC became final in 1998, a hearing on attorney fees was held in which the trial court awarded a reasonable attorney fee of $970,261.75 of the judgment amount of $3,138,118 with interest accruing during the period of escrow to be apportioned accordingly. The trial court determined that the contingency fee agreement had been superceded by a subsequent oral contingency fee agreement that did not comply with the Indiana Rules of Professional Conduct. The trial court made its determination of what constituted a reasonable fee pursuant to the principles of quantum meruit. The fee award was determined by using the firm’s hourly rate, plus a $650,000 bonus for the firm’s “achievement.” The trial court subtracted $63,000 from the total for what it determined to be attorney misconduct. Major Argument On appeal, Major argued that the trial court’s fee award was too high. Major argued the doctrine of “unclean hands” requires that he who seeks equitable relief must be free of wrongdoing in the matter before the court (Community Care Inc. v. Sullivan, 701 N.E. 2d 1234, 1242 [Ind. App. 1998]). According to Major, the trial court was required to find the firm to be precluded from seeking equitable relief pursuant to the quantum meruit doctrine. The Third District Illinois Court of Appeals disagreed, citing the Indiana Supreme Court’s decision in Rochester v. Campbell (184 Ind. 421, 111 N.E. 420, 421 [1916]), in which the court found “a contract for legal services was invalid because it linked the fee for legal services to a recovery amount but not illegal either on account of the nature of service or the circumstances under which it was rendered, the attorney may recover on quantum meruit notwithstanding the invalidity of the contract under which the services were rendered.” The appeals court said any misconduct was by Major’s attorney, who shielded any misconduct from the balance of the law firm. The court said any misconduct occurred only after a significant portion of the trial preparation and work occurred. “The quality of professional service was in no way affected. Major was not damaged by the misconduct. Therefore a denial of a substantial attorney fee seems out of all proportion to the wrong,” the appeals court said. “Major was a participant in the misconduct and probably initiated it by making the payment. It is troubling to create a precedent that a client can bar his attorney from collecting his attorney fee in a matter by timing an ill-defined gift or bonus or loan to his lawyer. While it is reasonably clear that Major was not intending to do this, creating the precedent of barring payment under such circumstances would be most inappropriate.” Dissent In dissent, Judge James S. Kirsch held that the court should not unjustly enrich the law firm on quantum meruit. “The trial court ordered and the majority affirms a quantum meruit recovery which unjustly enriches the lawyer who failed to reduce his contingency fee agreement to writing in clear violation of the [rules of professional conduct]. I am troubled that an attorney who breaches the clearly set forth requirement that contingency fee agreements be in writing can, nevertheless, receive a bonus nearly tripling what he would have recovered on an hourly rate basis and, thus, recover more on a quantum meruit theory than he would have recovered had the invalid oral agreement been valid,” Judge Kirsch wrote. Judge Kirsch held that the original oral contingency fee agreement was a valid contract and a proper award would be to enforce the original 25 percent oral contingency fee agreement. Henry J. Price, William C. Potter II and Audrey M. Bougard of Price, Potter, Jackson & Mellowitz in Indianapolis represent Ralph Major Jr. Defendant Robert W. Mysliwiec appears pro se. Opinion
available
Insured
Entitled To DAYTONA BEACH, Fla. — An insured is entitled to statutory interest and attorney fees in a coverage dispute action after an insurer settled the case and admitted liability, a Florida appeals court ruled Jan. 19 (Deborah Palmer, etc., et al. v. Fortune Insurance Co., No. 5D00-731, Fla. App., 5th Dist.). The Fifth District Florida Court of Appeal granted Deborah Palmer’s petition for writ of certiorari and quashed a Lake County Circuit Court opinion which had denied her application for attorney fees. Palmer’s son, Corey Henne, was killed in an automobile accident on June 3, 1997. At the time of the accident, Henne was operating a vehicle owned by his girlfriend’s father, Edwin Burch, who was insured through the respondent Fortune Insurance Co. PIP Benefits Claim After the accident, Palmer filed a personal injury protection benefits claim seeking payment of the $5,000 death benefit provided by Burch’s PIP coverage and reimbursement for a $260 charge from the ambulance service which had transported Henne to the hospital. Under Florida law, PIP claims shall be paid within 30 days after the insurer is furnished written notice of the fact of a covered loss and the amount. Fortune had initially denied coverage because it believed Henne lived with his parents at the time of the accident and therefore his father’s insurer would be the responsible party. The insurer argued that it paid Palmer’s claim within a reasonable period of time and any delay was caused by Palmer. Fortune cited Allstate Insurance v. Ivey (728 So. 2d 282 [Fla. 3d DCA 1999]), in which the Third District Florida Court of Appeal denied plaintiff’s motion for attorney fees based on an untimely PIP claim. In Ivey, the court said the insured was not entitled to fees as the insurer made an incomplete payment during the 30-day period because of ambiguity in the bill itself and made full payment within 30 days once the bill was corrected by the doctor at deposition. The Fifth District Court of Appeal said Ivey was distinguishable from Palmer because Fortune failed to make a partial payment and instead did nothing. The Fifth District added that the Florida Supreme Court recently quashed the Ivey decision, finding that the certiorari review was inappropriate and should not have been granted. Confession Of Judgment In Wollard v. Lloyd’s and Companies of Lloyd’s (439 So. 2d 217 [Fla. 1983]), the Florida Supreme Court held that where an insurer has agreed to settle a disputed case, it has declined to defend its position in the pending suit and the payment of the claim is the functional equivalent of a confession of judgment in favor of the insured, and therefore the settlement provides the basis for an award of attorney fees to the insured. Palmer asserted that because Fortune did not pay the claim within 30 days, the insurer’s lack of action necessitated legal action. The appeals court ruled that it was Fortune which failed to verify Palmer’s claim with the required 30 days, and therefore delayed payment on the claim until it received proof of coverage. “The burden is on the insurer to authenticate a claim within the 30 day period,” the appeals court ruled. “Fortune attempts to shift the burden to Palmer, by stating there was incorrect information in her documents, and that her attorney dragged his heels in furnishing a police report. The legislature placed the burden on the insurer to verify the claim within the 30 day period because the no-fault statute was designed to provide a speedy recovery of PIP benefits.” The court said the statute does not provide for the action the insurer took because Fortune neither paid the reasonable value of the submitted claims nor denied coverage within the 30-day period. Brent C. Miller of Miller and Heil in Leesburg, Fla., represents Deborah Palmer. Jerri A. Blair and Samuel E. Oliver of Jerri Ann Blair, P.A., of Tavares, Fla., represent Fortune Insurance. Opinion
available
Defense
Grievance Hearing NEW YORK — A defendant’s agreement to hold grievance hearings to mitigate a labor dispute was not as a result of pressure from a pending lawsuit and does not qualify as a catalyst under the catalyst theory for attorney fees, the Second Circuit held Jan. 16 (West Chester County Correction Officers Benevolent Association, Inc., et al. v. The County of West Chester, No. 00-7663, 2nd Cir.). The Second Circuit vacated a ruling by the U.S. District Court for the Southern District of New York and remanded with instructions for the District Court to determine if judgment could have been had for the plaintiffs if the litigation had proceeded. The District Court had granted the plaintiffs’ motion for attorney fees, having determined that plaintiffs were prevailing parties who were entitled to fees under 42 U.S. Code Section 1988. The District Court awarded fees of $16,000 by using a multiplier of two times the lodestar amount. No Catalyst “Generally a plaintiff is entitled to fees under §1988 when actual relief on the merits of the claim materially alters the legal relationship between the parties by modifying the defendant’s behavior in a way that directly benefits the plaintiff (Farrar v. Hobby, 506 U.S. 103, 111-12, 121 [1992]),” the Second Circuit said. “Victory can be achieved well short of a final judgment (or its equivalent): ‘if the defendant, under pressure of the lawsuit, alters his conduct (or threatened conduct) towards the plaintiff that was the basis for the suit, the plaintiff will have prevailed’ (Marbley v. Bane, 57 F. 3d 224, 234 [2nd Cir. 1995]). The lawsuit must be a catalytic, necessary or substantial factor in attaining relief.” There must be a causal connection between the altered behavior and the lawsuit, the court said. Implicit in the catalyst theory of attorney fees is had the litigation proceeded to a final judgment, judgment could have been for the plaintiff, and the altered behavior brought about the result the plaintiff sought, the Second Circuit said. “In other words, frivolous, unreasonable or groundless claims cannot qualify as catalytic factors,” the Second Circuit said. Gratuitous Response The District Court ruled that the county’s concession to allow grievance hearings changed the legal relationship between the parties and afforded plaintiffs the relief they sought. “Thus, whether the hearings were gratuitous or compelled by law, the plaintiffs’ suit was a catalytic, necessary or substantial factor in attaining the relief,” the District Court said. The Second Circuit said the District Court’s statement that a gratuitous response by the defendant can qualify as a catalytic factor suggests an erroneous view of the law and an abuse of discretion. “If a plaintiffs’ claims are frivolous, unreasonable or groundless such that the defendant’s response is wholly gratuitous, the lawsuit cannot qualify as a catalytic factor in bringing about that response,” the Second Circuit said. Robert David Goodstein of New Rochelle, N.Y., represents plaintiff the West Chester County Correction Officers Benevolent Association. Senior Assistant West Chester County Attorney Linda M. Trentacoste of White Plains, N.Y., represents defendant the County of West Chester. Opinion
available
California
Federal Judge SACRAMENTO, Calif. — In a case where a homeowner recovered $3 million for mold damage and bad faith claims from its carrier, a California federal judge on Jan. 26 awarded him nearly $60,000 in expert and attorney fees (Thomas Anderson v. Allstate Insurance Co., No. CIV-00-907, E.D. Calif.). In August 1996, Allstate reissued Thomas Anderson a deluxe homeowners policy that covered the dwelling, personal property and additional living expenses caused by sudden and accidental discharge of water from a plumbing device. Pipes Burst In January 1997, several pipes burst in Anderson’s home. Due to home remodeling efforts, the interior of the home was empty and Anderson was not staying in it at the time. A month later, an insurance inspector noted in a report that the pipe ruptured in the attic for several days, resulting in mold and mildew in all rooms. In November 1997, the water supply to the house was shut off. Anderson sued Allstate in the U.S. District Court for the Eastern District of California and the case was tried before District Judge Lawrence K. Karlton. The federal jury on Oct. 3 awarded the policyholder nearly $500,000 in damages and $18 million in punitive damages. However, in a Dec. 13 minute order, Judge Karlton denied Allstate’s new trial motion and gave the plaintiffs 10 days to respond to the remittitur of verdict to $2.5 million in punitive damages. The judge also denied Allstate’s motion to stay execution of judgment without bond and ordered the carrier to post a $3.8 million bond for appeal. Fees Awarded In a Jan. 16 order, the judge further awarded Anderson $23,864 in expert fees and $36,364 in attorney’s fees as contract damage from Allstate. “Plaintiff’s total punitive damage award is $2,725,411.80. In addition, as the prevailing party plaintiff may recover $23,887.88 in litigation costs for a total judgment in the amount of $3,294,381.80,” the court ruled. Counsel for Allstate includes Dennis G. Seley and Claudia J. Robinson of Lewis, D’Amato, Brisbois and Bisgaard in Sacramento, Calif. Anderson is represented by Stanley R. Parrish and Ronald Haven of Shepard and Haven in Sacramento. Orders
available
Illinois
Federal Court Awards CHICAGO — Ruling that the EPA’s action against American National Can Co. under the Clean Air Act for alleged asbestos violations was unreasonable, an Illinois federal court on Jan. 3 awarded attorneys’ fees to ANC (United States v. American National Can Co., No. 98 C 5133, N.D. Ill., Eastern Div.). The Eastern Division of the U.S. District Court for the Northern District of Illinois previously dismissed five counts of federal air and asbestos violations against ANC made by the government on behalf of the EPA. The court ruled that under the National Emission Standards for Hazardous Air Pollutants (NESHAP) provision of the Clean Air Act, the scavenging activity at ANC did not constitute a renovation. Vacant Canning Facility The action stems from the closing of an ANC Chicago-based manufacturing facility in 1993. Vacating the premises and with plans to demolish the facility, ANC turned off the alarm systems and water service and hired a security company to patrol the abandoned building and surrounding property. Subsequent to ANC’s departure, unauthorized scavengers accessed the building. In an attempt to salvage metal, the scavengers disturbed friable asbestos materials that housed pipes and other components. The EPA discovered the contamination and potential violations of NESHAP in 1994. According to its inspection, substantial amounts of stripped and removed friable asbestos materials existed in the vacant building. The EPA issued a proposed administrative order requiring ANC to further secure the facility so no more scavengers could gain access. Upon the issuance of a final EPA order, ANC hired an asbestos removal company to clean up the disturbed asbestos. ANC demolished the facility in 1995. NESHAP Violations Alleged In 1998, the government filed a five-count complaint against ANC, alleging that the can manufacturer violated the Clean Air Act by renovating the facility without adhering to NESHAP’s removal regulations. The government alleged that ANC violated the federal air pollution statute because the friable asbestos was not removed from the plant prior to the scavenging, the asbestos was not wetted while being disturbed and the asbestos was not kept wet until collected for disposal. The government further contended that ANC issued a deficient notice of demolition and violated the final administrative order because scavengers continued to access the building and disturb the asbestos after the order was issued. ANC filed a motion for summary judgment on all five counts, arguing that unauthorized scavenging does not constitute a renovation as described by NESHAP. ANC also contended its demolition notice was sufficient and claimed that any unauthorized scavenging after the administrative order should be disregarded as the EPA neither had the authority to issue the administrative order nor power to enforce it. At trial, the court cited Thomas Jefferson University v. Shalala (No. 94-2381, U.S. Sup.), which encompasses the review of deference an agency is owed when it interprets its own regulations. The court ruled that in this instance, the EPA’s interpretation of its own regulation cannot survive judicial review. Under NESHAP, the court ruled, renovate means “to restore to a former better state (as by cleaning, repairing, or rebuilding),” and, therefore, unauthorized scavenging is not within the provisions outlining violations of NESHAP. “By interpreting ‘renovation’ to include unauthorized scavenging, the EPA attempts to broaden the scope of the asbestos NESHAP in a substantive manner without engaging in notice and comment rulemaking, and thereby violates a basic canon of administrative law. The EPA’s interpretation does not pass muster even under the lenient standards that govern our review,” the court said. ‘Unreasonable’ In awarding attorneys’ fees, the court reiterated its earlier decision that the EPA overstepped the bounds of administrative law and called ANC, in this instance, a “laboratory rat” that should not have to bear the cost of its own defenses. Under Section 413(b)(3) of the Clean Air Act, in any action brought by the administrator under this subsection, the court may award costs of litigation, including reasonable attorneys’ fees, to the party or parties against whom such action was brought if the court finds that such action was unreasonable. In this instance, the court found that the EPA was unreasonable because its administrative actions were without merit. “The EPA construes the term ‘renovation’ to include unauthorized scavenging. The overwhelming evidence related to the asbestos NESHAP indicates that the EPA is wrong. It translates into administrative action wholly without basis in fact or law, and such an action is unreasonable,” the court said. ANC is represented by Joseph V. Karaganis, Alan B. White, John W. Kalich, Barbara A. Magel and Christopher W. Newcomb of Karaganis & White in Chicago. The government is represented by Kurt N. Lindland of the U.S. Attorney’s Office in Chicago. Opinion
available
Insured
Not Entitled To ATLANTA — A Florida couple whose home sustained substantial damage as a result of a hurricane is not entitled to an appraisal of damage or attorney fees as a prevailing party because they did not satisfy all of the post-loss duties required under their insurance policy, the 11th Circuit held Jan. 4 (Floyd Jacobs, et al. v. Nationwide Mutual Fire Insurance Co., Nos. 99-4301, 99-10529, 11th Cir.). The 11th Circuit reversed and remanded summary judgment granted by the U.S. District Court for the Southern District of Florida in favor of plaintiffs Floyd and Ruth Jacobs. The District Court ruled that because the Jacobs satisfied the proof of loss requirement of their Nationwide Mutual Fire Insurance Co. policy, they were entitled to an appraisal of the damage. The Jacobs had estimated a $104,120.27 loss to their home. Subsequent Precedent A subsequent ruling by the Third District Florida Court of Appeal (United States Fidelity & Guarantee Co. v. Romay, 744 So. 2d 467 [Fla. 3d DCA 1999]) held that the insured must satisfy all post-loss duties and not merely submit a proof of loss. In Romay, the policy required the insured to perform certain prerequisites before the policy’s appraisal clause was triggered, such as submit a sworn proof of loss and supporting documents, submit to an examination under oath and make the property available for inspection. The insured in Romay had failed to meet any of the post-loss obligations other than a submission of the sworn proof of loss. The Romay trial court granted the plaintiff’s petition to compel arbitration because under Allstate Insurance Co. v. Sierra (705 So. 2d 119 [Fla. 3d DCA 1998]), filing a sworn proof of loss entitled the insured to an appraisal. On appeal, the court ruled that the insured must meet all post-loss obligations imposed by the policy before appraisal may be compelled. The 11th Circuit said the Jacobs failed to fulfill their post-loss obligations when they declined to answer several questions and were unable to answer other questions during an examination under oath. The Jacobs also failed to fulfill their obligation when they did not provide some of the documents their insurer had requested, it said. Issues Of Fact “There remain genuine issues of material fact regarding whether, by responding to some, but not all, of Nationwide’s questions and document requests, the Jacobs have fulfilled their post-loss duties and thus satisfied the requirements of Romay. Accordingly, we must remand to the District Court to determine whether the Jacobs have fulfilled their post-loss obligations, and whether the Jacobs are entitled to appraisal,” the 11th Circuit said. The 11th Circuit also found that because the District Court granted the Jacobs’ motion for summary judgment, it dismissed Nationwide’s affirmative defenses as moot. The 11th Circuit instructed the District Court to fully adjudicate Nationwide’s affirmative defenses. The court further remanded the attorney fee issue as the Jacobs may no longer be the prevailing party. H. Jeffrey Cutler of De La Cruz & Cutler in Coral Gables, Fla., represents Floyd and Ruth Jacobs. Anthony J. Russo of Butler, Burnette & Pappas in Tampa, Fla., represents Nationwide. Opinion
available
Florida
Appeals Court DAYTONA BEACH, Fla. — A Florida appeals court on Jan. 26 remanded a trial court’s award of $328,000 in fees based on a multiplier for establishment of a reasonable award without use of a multiplier (Internal Medicine Specialists v. Linda Figueroa, et al., No. 5D00-1279, Fla. App., 5th Dist.). By a 2-1 margin, the Fifth District Florida Court of Appeal said the fee award was inappropriate because the prevailing counsel failed to provide evidence to show that the prevailing party would have had difficulty obtaining quality counsel if there had been no multiplier used. The appeals court remanded the case to the Orange County Circuit Court for a recalculation of the fee award without the use of a multiplier. Plaintiffs Linda and Melvin Figueroa obtained a verdict of $807,500 in a medical malpractice action. The award was more than 25 percent greater than the pretrial demand for judgment. Following the verdict, the trial court awarded the prevailing counsel $328,286.20 in attorney fees based on use of a multiplier of 2.0 on the basis that such was necessary in order for plaintiffs to obtain competent counsel. The trial court cited Florida Statutes Section 768.79, which permits multipliers when obtaining quality counsel would otherwise be difficult. The effect of the multiplier was to award counsel an hourly fee of $550. Defendants appealed the trial court’s use of a multiplier. No Factual Findings Appellant Internal Medicine Specialists agued the trail court applied a multiplier without making any factual findings regarding its propriety. It further argued there was a lack of evidence to show the Figueroas could not have obtained competent counsel absent the availability of a contingency risk multiplier. Internal Medicine said the Figueroas did obtain competent counsel at a time when no such multiplier was available and she was the first attorney they approached regarding the case. While there was evidence that the attorney declined to take the case on an hourly rate basis, counsel was willing at the outset to take the case on a contingency basis, it said. No evidence was adduced to show that other attorneys were not available to the Figueroas, Internal Medicine said. The appeals court concurred with Internal Medicine’s argument by citing Strahan v. Gauldin (756 So. 2d 158 [Fla. App., 5th Dist, 2000]). In Strahan, the Fifth District appeals court reversed a trial court that had used a 2.0 multiplier which had arisen out of an offer of judgment. “We note that no evidence was presented that . . . counsel could not have been retained but for a multiplier,” the Strahan court said. “It stretches credibility to believe that the Figueroas would have had difficulty obtaining quality counsel in a case which their experienced trail counsel evaluated as warranting a settlement demand of $500,000,” the appeals court said in its Figueroa opinion. The appeals court said the criteria for using a multiplier is outlined in Standard Guaranty Insurance v. Quanstrom (555 So. 2d 828 [Fla. 1990]). The Quanstrom court held that the first factor for a trial court to consider in determining whether a multiplier is necessary in setting a reasonable lodestar fee is “whether the relevant market requires a contingency fee multiplier to obtain competent counsel.” The Quanstrom court said if success were more likely than not at the outset of a case, a multiplier of 1.0 to 1.5 would be appropriate. If success were likely, the appropriate multiplier would be 1.5 to 2.0, while if success is unlikely at the outset of a case the court could use a multiplier of 2.0 to 2.5, the Quanstrom court said. Dissent In a dissent, Judge Winifred J. Sharp said he believes the Figueroas supplied a sufficient factual basis for the fees awarded and the trial court made adequate findings to support the award. Judge Sharp said although the appeals court reversed a fee award with a multiplier in Strahan, citing a lack of evidence to support the award, the court also questioned whether there could ever be such testimony proffered that would meet the court’s evidence standard. “The majority opinion in this case is reversing the contingency fee multiplier factor of fee award for the same stated reasons as we gave in Strahan. I think there has to be a better way. We should not hold out contingency fee multipliers as possible under section 768.79, and then require attorneys to offer incredible or impossible proofs,” Judge Sharp said. “I am not sure what more could be established to sustain the multiplier pursuant to Strahan.” Judge Sharp said the court’s only alternative is to either recede from precedent established in Garrett v. Mohammed (686 So. 2d 229 [Fla. App., 5th Dist., 1996]), which permitted contingency fee multipliers where appropriate, or readdress what is required by way of proof to sustain a multiplier award in Section 768.79 cases. David R. Cassetty of O’Connor & Meyers in Coral Gables, Fla., represents Internal Medicine Specialists. Elizabeth H. Faiella of Winter Park, Fla., and Marcia K. Lippincott of Lake Mary, Fla., represent Linda and Melvin Figueroa. Opinion
available
Fee
Claims Following TRENTON, N.J. — A plaintiff who agrees to arbitrate a discrimination claim may subsequently petition for attorney fees and costs, the New Jersey Supreme Court held Jan. 29 (Anne Riding v. Towne Mills Craft Center Inc, et al., No. A-54/A-55, N.J. Sup.; See September 1999, Page 6). Anne Riding sued Towne Mills Craft Center Inc. and other defendants for age discrimination under the New Jersey Law Against Discrimination (LAD). The matter was selected for arbitration, and the arbitrator awarded Riding $38,240. No mention of counsel fees was ever made during the arbitration process. When Riding moved to confirm the award, she sought counsel fees, costs and expenses totaling $9,743.78. Towne Mills opposed the award of fees, arguing that since Riding did not include a request for fees during arbitration, the request was an attempt to modify the arbitration award. The trial court affirmed the arbitrator’s award but denied the fee request. The New Jersey Superior Court Appellate Division ruled that as the prevailing party, Riding was entitled to recover fees and she did not waive her right to fees by failing to raise the issue during arbitration. The Supreme Court affirmed the appellate court ruling and established a procedure for which future arbitration cases involving fee requests will follow. Fee-Shifting Procedure The Supreme Court said in future nonbinding arbitration, statutory fee-shifting issues will be reserved for court resolution unless the parties otherwise agree to submit the fee demand to the arbitrator. Successful litigants who do not make a fee request to the arbitrator would be permitted to make a fee request to the trial court, which would render a decision along with the court’s decision on whether to confirm the arbitrator’s award. “Even when the issue is reserved for the trial court, a defendant reviewing an arbitration award need not be prejudiced in assessing the potential extent of its fee liability. Attorneys are generally able to estimate an adversary’s fee request. If necessary, the parties would not be precluded from seeking abbreviated discovery to facilitate an estimate of the amount of a potential fee award in the event the arbitrator were to conclude in favor of the plaintiff,” the Supreme Court said. “Thus, when considering whether to seek a de novo trial following the issuance of an arbitrator’s award involving an LAD claim, a defendant would be armed with an understanding of the likely fee award to the prevailing plaintiff. No unfairness would be visited on the defendant in such circumstances.” Dissent Justices Peter G. Verniero and Virginia Long dissented on the portion of the majority’s ruling which held fee requests are to be decided by the trial court. The dissenters said the court should encourage the arbitrator to make fee decisions. “The salutary purpose of New Jersey’s arbitration system is to adjudicate disputes efficiently and inexpensively ‘and to ease the caseload of state courts’ (Behm v. Ferreira, 286 N.J. Super. 566, 574, 670 A.2d 40 [App. Div. 1996]),” Justice Verniero wrote in his dissent. “Consistent with that purpose, arbitrators have proved themselves to be skilled in resolving complaints, and I see no reason why those same professionals should not decide the question of fees.” Stephen M. Offen of Schachter, Trombadore, Offen, Stanton & Pavics in Somerville, N.J., represents Towne Mills. Brian M. Cige of Somerville, N.J., represents Anne Riding. Opinion
available
Texas
High Court AUSTIN, Texas — The Texas Supreme Court on Jan. 11 declined to review an appeals court decision that an insurer failed to notify its insured of its intention to exercise its reservation of rights and withdraw its duty to defend in an underlying product defect suit (Providence Washington Insurance Co. v. A&A Coating Inc., No. 00-1174, Texas Sup.). $97,500 In Fees At issue is $97,514.12 of legal fees incurred in an underlying suit arising from A & A Coatings Inc.’s application of epoxy paint to steel gas pipelines. In 1994, A & A Coatings was named as a defendant in a New Mexico action initiated by the Gas Company of New Mexico against several coating applicators for damage to several hundred feet of steel gas pipelines. Western Alliance Insurance Co., a subsidiary of Providence Washington Insurance Co., issued a CGL policy to A & A, which covered claims against A & A involving its coatings operations. Western Alliance agreed to defend A & A in the New Mexico suit under a reservation of rights. Providence entered into an agreement with Zurich American Insurance to defend the case. In a letter agreeing to defend under a reservation of rights, Providence was also required to notify A & A upon termination of the defense. Claims against A & A in the New Mexico litigation were barred under the statute of limitations. Providence contributed $5,000 toward the settlement of that case, but refused to reimburse is insured for the legal fees incurred in the defense. Notice The 76th Judicial District Court of Morris County granted summary judgment in favor of A & A, finding that Providence failed to exercise its reservation of rights by not giving notice of termination to A & A. Providence argued that notice of withdrawal was given when the New Mexico court dismissed all claims against A & A pursuant to the statute of limitations. The Sixth District Texas Court of Appeals found the trial court properly granted summary judgment and held Providence liable for A & A’s attorney fees. Specifically, a letter from Providence to Benjamin Silva Jr. of Silva, Rieder & Maestas in Albuquerque, N.M., the attorney representing A & A in the underlying suit, did not indicate notice of withdrawal, the court said. Furthermore, the letter was sent seven months after the New Mexico court issued its memorandum opinion and is too long a period for its insured to assume alternate means of defense, the appeals court said. Vincent Lee Dulweber of Longview, Texas, represented A&A Coating. The attorney for the insurer was Snow E. Bush of Longview. n Appellate
opinion available
Arbitrators
‘Erred’ In JACKSON, Tenn. –– The arbitrators appointed to decide a dispute between D&E Construction Co. and the Robert J. Denley Co. “erred” in awarding attorney’s fees to D&E Construction, according to the Supreme Court of Tennessee (D&E Construction Co. Inc. v. Robert J. Denley Co. Inc., W1998-00445-SC-R11-CV, Tenn. Sup.). The Supreme Court on Jan. 19 severed the award issued to D&E Construction and vacated only the attorney’s fees from the amount awarded to the construction company. “Because the arbitration provision, read within the context of the parties’ entire written agreement, precludes arbitrators from deciding the issue [attorney’s fees], the arbitration panel lacked jurisdiction to award attorney’s fees. We agree with Denley that the panel exceeded its powers as set forth by the agreement to arbitrate. Nevertheless, we decline to adopt Denley’s requested remedy, that is, to vacate the entire arbitration award. Instead, in the spirit of promoting prompt settlement of disputes via alternative dispute resolution, we opt for a more equitable remedy: sever the award and vacate only the attorney’s fees from the total amount awarded to D&E,” State Supreme Court Justice William M. Barker Jr. wrote. Justice Barker delivered the opinion of the court, in which Chief Justice E. Riley Anderson and Justices Frank F. Drowota III, Adolpho A. Birch Jr. and Janice M. Holder joined. Award Issued An American Arbitration Association arbitration panel on Jan. 15, 1998, issued an award in favor of D&E Construction. The award also directed Denley to pay to D&E Construction $13,000 in attorney’s fees. D&E Construction filed a petition to confirm the award and Denley moved to vacate the award. Both actions were consolidated and on July 23, 1998, D&E Construction moved for summary judgment confirming the arbitration award. The Tennessee Chancery Court for Shelby County vacated the award, saying the arbitrators “exceeded their powers” in awarding attorney’s fees to D&E Construction. D&E Construction appealed the Chancery Court’s decision, arguing that the “American Rule” requiring each party to pay its own attorney’s fees “absent statutory authority or a contractual provision to the contrary does not necessarily apply to arbitration proceedings in Tennessee,” according to Justice Barker. The Tennessee Court of Appeal rejected D&E Construction’s “American Rule” argument, “reiterating this jurisdiction’s well established rule that attorney’s fees cannot be awarded in contract disputes unless the contract or applicable statutory law so provides,” according to Justice Barker. The appeals court also examined the question of whether the arbitrators exceeded their power in awarding attorney’s fees. Arnold v. Morgan Keegan & Co. Citing the state Supreme Court’s decision in Arnold v. Morgan Keegan & Co. (914 S.W.2d 445 [Tenn. 1996]), the appeals court agreed that the award of attorney’s fees could be “found to have [been] an error of law,” but such error was nevertheless “insufficient to invalidate an award fairly and honestly made,” Justice Barker said. The appeals court reversed the Chancery Court’s judgment and remanded the case for further proceedings. Denley petitioned the State Supreme Court to review the appeals court’s decision. “The Supreme Court found that the contract did not include a provision requiring Denley to pay attorney’s fees to D&E Construction in the event of its breach of the contract,” Justice Barker said. “In summary, we hold that the Court of Appeals erred in confirming the entire arbitration award. The contract as a whole reflects the parties’ intent for the arbitrators to decide all disputes in accordance with Tennessee law, and, absent the parties’ clear agreement to the contrary, Tennessee prohibits the award of attorney’s fees for arbitration proceedings. While the arbitrators did resolve the clearly arbitrable issue submitted to them, the panel exceeded its authority in awarding these fees. Accordingly, the judgment of the Court of Appeals is affirmed in part and reversed in part. The award of attorney’s fees is vacated. This case is remanded to the trial court for further proceedings to consider the other issues raised by the owner in its petition to vacate the award,” Justice Barker wrote. Julie C. Bartholomew of Somerville, Tenn., represents Denley. Ted M. Hayden of Less, Getz & Lipman in Memphis, Tenn., represents D&E Construction. Opinion
and award available
Plaintiffs’
Counsel Gets CHICAGO — Three attorneys representing 11 black female plaintiffs in an employment discrimination action were awarded approximately $1.1 million in attorney fees Jan. 16 by an Illinois federal judge (Delores Kitchen, et al. v. TTX Co., No. 97-C-5271, N.D. Ill., Eastern Div.). The attorney fee action follows the submission and acceptance of a Federal Rule of Civil Procedure 68 offer of judgment to each plaintiff. The plaintiffs received a total of $610,000 as part of the settlement agreements. U.S. Judge Wayne R. Andersen of the Northern District of Illinois awarded plaintiffs’ attorneys H. Candice Gorman, Gregory X. Gorman and Catherine Caporusso a total of $1,096,412.60 in fees plus an additional $51,357.66 as reimbursement for expenses. Plaintiffs’ counsel had requested $1,308,153 plus $54,127.46 in expense reimbursements. Defense Arguments Defendant TTX Co. had argued that all 11 plaintiffs should not be considered prevailing parties as eight of the 11 accepted judgments less than 10 percent of the dollar amount originally demanded. The plaintiffs received substantial compensation and the fact that recovery was less than 10 percent should not be a determinative factor in awarding fees, the judge said, citing TUF Racing Products, Inc. v. American Suzuki Motor Corp. (223 F.3d 585, 592 [7th Cir. 2000]). In TUF Racing, the Seventh Circuit stated, “if a plaintiff scales back her request the ‘10 percent rule’ need not be dispositive.” Judge Andersen said the parties engaged in extensive settlement negotiations and the final offers were more than half of the plaintiffs’ final total requests. TTX also argued that fees should not be awarded as the eight lesser offers were equivalent to the nuisance or trial values of the cases. The judge disagreed, saying that the total offer was above the costs of defense at the time it was made. “This court believes that the defendant included some anticipated risk of loss when setting the amount of offers. Given the extensive pre-trial preparation that had taken place and the immediacy of the trial itself, it would not have cost $610,000 to try these cases,” Judge Anderson wrote. Rule 68 Offer Language TTX further argued that the language in the Rule 68 offer proves that the plaintiffs cannot be prevailing parties, citing Cleary v. Martino (982 F. Supp. 639, 640 [E.D. Wis. 1997]). The defendant referred to language in the offers which said, “the offer of judgment is made for the purposes specified in Fed.R.Civ.P. 68, and is not to be construed either as an admission that defendant is liable in this action, or that [plaintiff] has suffered any damages.” The judge said that language outlined in the Cleary decision was only one factor he considered before awarding the plaintiffs fees. The judge said the TTX case differed in that the plaintiff in Cleary recovered $2,000, while the TTX plaintiffs’ recovery exceeded nominal status. The judge said he found time records compiled by plaintiffs’ counsel to be contemporaneous and the records were accepted as reasonable. The judge determined hourly rates of $295 for H. Candice Gorman, $240 for Gregory Gorman and $185 for Catherine Caporusso were reasonable considering counsels’ experience, performance before the court and rates previously awarded by other courts. The fee rates represented across the board reductions from the hourly rates requested by Candice Gorman, $325; Gregory Gorman, $325; and Catherine Caporusso, $190. H. Candice Gorman, Gregory X. Gorman and Catherine Caporusso, all of Chicago, represent the plaintiffs. John Yo-Hwan Lee of Ross & Hardies in Chicago and Thomas P. Kane, David M. Wilk and Terrence C. Oppenheimer of Oppenheimer, Wolff & Donnelly in St. Paul, Minn., represent the defendants. Opinion
available
California
Court Abused SANTA ANA, Calif. — The Orange County Superior Court did not have discretion to award defendants approximately $240,000 in attorney fees, a California appeals court held Jan. 17 (Shawn Choate, et al. v. County of Orange, et al., No. G020621, Calif. App., 4th Dist., Div. 3). At the conclusion of a civil rights trial involving five Orange County sheriff’s deputies, Orange County Superior Court Judge David H. Brickner denied plaintiffs’ motion for nearly $250,000 in attorney fees and instead awarded four of five defendants $241,644 in fees. The Superior Court based it fee award on its belief that plaintiffs’ civil rights causes of action were frivolous and without merit. The trial judge described the plaintiffs as “several of Dana Point’s more notorious local hooligans” who sought “unprovoked combat” for the fun of antagonizing “apparently passive victims.” The judge concluded that “not even the most wildly imaginative attorney would think of suing on these facts.” A jury had awarded plaintiffs $3,380 in compensatory damages and $1,000 in punitive damages. Plaintiffs had sought millions in damages from both the sheriff’s deputies involved in an alleged assault and their employer, the Orange County Sheriff’s Department. Abuse Of Discretion The Fourth District California Court of Appeal held that Judge Beck properly denied plaintiffs’ motion for fees, while also improperly granting defendants’ fees. “We hold the court had the discretion to taketh away, but no discretion to giveth. Because of plaintiffs’ extremely limited success on their civil rights claims, we follow Farrar v. Hobby, 506 U.S. 103 (1992) and leave each side to bear its own attorney fees,” the appeals court said. Civil Rights Fee Standard The appeals court said attorney fees are ordinarily awarded to prevailing civil rights plaintiffs unless special circumstances render such an award unjust. In contrast, prevailing civil right defendants can recover fees only where the court finds that the civil rights claim was objectively “frivolous, unreasonable or groundless, or that the plaintiff continued to litigate after it clearly became so (Hughes v. Rowe, [1980] 449 U.S. 5,14).” The appeals court explained the double standard for awarding fees in civil rights cases is necessary so as to “encourage vigorous enforcement of good faith civil rights claims.” “Private citizens should not forego the opportunity to vindicate core federal rights because they lack financial resources or because they fear they will have to pay the other side’s attorney fees if they lose. The specter of attorney fees should chill only vexatious plaintiffs who bring meritless lawsuits to settle scores, not disputes,” the appeals court said. The appeals court said that although plaintiffs may have instigated the fight with the defendants, it was also clear that the plaintiffs sustained physical injuries as a result of their contact with the defendants and the plaintiffs did not prosecute a frivolous case or bring suit solely for harassment without hope of success. “Notwithstanding the trial court’s characterization of plaintiffs as ‘hooligans’ and ‘pugnacious drunks’ (characterizations with which we do not necessarily agree), they did not thereby forfeit their claims to constitutional protection and certainly did not deserve what they got,” the appeals court said. Plaintiffs Fee Denial Proper The appeals court said that while plaintiff Shawn Choate did prevail against one of the defendants, special circumstances supported the trail court’s discretionary decision not to award fees. “Sometimes, as Farrar holds, a reasonable fee is zero, especially where recovery is de minimis, establishes no important precedent and does not change the relationship of the parties. The most critical factor in determining the reasonableness of a fee award is the degree of success obtained,” the appeals court said. Thomas E. Beck of Los Angeles represents the plaintiff-appellants. Tracy Strickland and S. Frank Harrell of Franscell, Strickland, Roberts & Lawrence in Santa Ana, Calif., represent the defendant-respondents. Opinion
available
$105,000
Fee Awarded Case Name and Number: Janelle Henderson v. Nationwide Mutual Insurance, No. 00-CV-1215 Court: E.D. Pa. Judge: Bruce W. Kauffman Date: Jan. 5 Nature of suit: Insurance liability Attorney fees / costs awarded: $104,690.43, $928.67 in costs Attorney fees / costs sought: $104,690.43, $928.67 in costs Method used: Judge approved settlement based on one-third contingency fee agreement with prevailing plaintiff. Plaintiff attorney: Joseph F. Roda of Roda & Nast in Lancaster, Pa. Defense attorney: R. Bruce Morrison of Marshall, Dennehey, Warner, Coleman & Goggin in Philadelphia.
Breach
Of Stock Purchase Case Name and Number: Wells Fargo v. Fernandez, et al., No. 98 Civ. 6635 Court: S.D. N.Y. Judge: Shira A. Scheindlin Date: Jan. 23 Nature of suit: supplemental attorney fees following breach of stock agreement action. Attorney fees / costs awarded: $123,609.37 in fees plus $14,170.13 in costs. Court had previously awarded $884,879.33 in fees as part of original suit. Attorney fees / costs sought: $247,218.75 in fees plus $39,496.14 in costs Method used: Judge reduced plaintiff’s request by 50 percent as he determined only half of counsel’s work was related to the stock purchase agreement. Plaintiff attorneys: David Dunn and Scott Estes of Hogan & Hartson in New York. Defense attorney: Eduardo Tabio of Fox, Horan & Camerini in New York.
Trademark
Action Merits Case Name and number: United Phosphorous v. Midland Fumigant, No. 91-2133-GTV, No. 95-2267-GTV Court: D. Kan. Judge: G. Thomas VanBebber Date: Nov. 30 Nature of suit: Trademark infringement Attorney
fees / costs awarded: $62,540 plus $30,111.22 in post-trial fees/expenses Method used: Lodestar based on hourly rate ranging from $80 an hour to $210 an hour based on attorneys’ experience. The judge, based on what he terms plaintiffs’ limited success, drastically reduces plaintiffs’ billable hours. Plaintiff attorneys: Floyd R. Finch Jr., Robert E. Marsh, Bruce Campbell, William F. High and Shelley A. Runion of Blackwell, Sanders, Peper & Martin in Kansas City, Mo. Defense attorneys: D.A.N. Chase of Chase & Yakimo in Overland Park, Kan., and John C. Tillotson of Tillotson, Nelson, Wiley & Brzon in Leavenworth, Kan.
Trademark
Plaintiff Gets Case Name and Number: Bear USA, Inc. v. JOOAN, Co., LTD., No. 98 Civ. 7649 Court: S.D. N.Y. Judge: U.S. Magistrate Judge Kevin Nathaniel Fox and U.S. District Judge Robert B. Patterson Jr. Date: Jan. 25 Nature of suit: Trademark infringement Attorney fees / costs awarded: $63,580 Attorney fees / costs sought: $63,580 Method used: Lodestar utilizing hourly rates and number of billable hours submitted by attorneys. Hourly rates ranged from $105 to $320 based on the attorneys’ level of experience. Plaintiff
attorney: Theodore C. Max of Phillips, Nizer, Benjamin, Krim & Ballon
in New York.
Civil
Rights Suit Case Name and number: Paul W. Harper v. BP Exploration & Oil, Nos. 99-5442, 99-5472 Court: 6th Cir. Judges: Cornelia G. Kennedy, Richard F. Suhrheinrich, David A. Nelson and Karen Nelson Moore Date: Jan. 22 Nature of suit: Civil rights Attorney fees / costs awarded: $450,892.64 in fees affirmed by Sixth Circuit. Appellate fee request denied. Method used: Lodestar. District court reduced plaintiff’s counsel’s hourly rate from $180 to $150 due to attorney’s lack of experience at the start of the case. Plaintiff attorneys: Phillip L. North, Michael F. Jameson and Thomas W. Shumate IV of North, Pursell & Ramos in Nashville, Tenn. Defense attorneys: Roger A. Weber and Kerry P. Hastings of Taft, Stettinius & Hollister in Cincinnati, Keith D. Frazier of Ogletree, Deakins, Nash, Smoak & Stewart in Nashville, Tenn., and Curtis L. Mack of McGuire & Woods in Atlanta.
Breach
Of Settlement Case Name and number: Covino & Company, et al. v. David Adamo, No. 96 Civ. 6021 Court: S.D. N.Y. Judge: Robert P. Patterson Jr. Date:
Feb. 6 Attorney fees / costs awarded: $35,827.41 Attorney fees / costs sought: $36,232.41 Method used: Lodestar. Judge reviewed defense attorneys’ time charges and granted fee request with only minor adjustment. Fee request was reduced by $360 for services performed after the time in which counsel was necessary. Plaintiff attorney: Richard J. Weiner of Weiner & Gall in Nanuet, N.Y. Defense attorneys: Paul E. Knag and Cassandra Burns McDonald of Cummings & Lockwood in Stamford, Conn., and Dennis M. Rothman and Lester Schwab of Katz & Dwyer in New York.
Plaintiff
Wins $221,000 Award Case Name and number: Natural Resources Defense Council v. Jeanne Fox, et al., No. 94 Civ. 8424 Court: S.D. N.Y. Judge: Pete |