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In Minnesota Life Ins. Co. v. Alexander, ___ F. Supp. 3d ___, No. 2:22cv207, 2023 WL 6290820 (E.D. Va. Sept. 25, 2023) the Court allowed a life insurance company to interplead multiple various entities which did or could claim to be beneficiaries. Minnesota Life, 2023 WL 6290820, at *4.
But the Court did not allow the life insurance company to recover its attorney's fees in the interpleader. The Court ruled, in a case of apparent first impression within the Fourth Circuit, that the interpleading insurance company cannot recover its fees and costs where it is acting in the ordinary course of business in bringing the interpleader. That was the case here, the Court ruled. Minnesota Life, 2023 WL 6290820, at *4-*5.
Interpleader and attorney's fees are discussed in the context of both third-party and first-party insurance bad faith cases in both Volumes of DENNIS J. WALL, LITIGATION AND PREVENTION OF INSURER BAD FAITH (West Publishing Co. 3d Edition, 2024 Supplements in process).
I recently uncovered a story of how corporations ask legislators to agree to keep quiet about giving the corporations tax breaks until the breaks become law.
The corporations are apparently concerned that if there is publicity before they get their tax breaks, then the legislators might become unreliable and pay more attention to the people they represent than to the corporations that want the tax breaks. So the corporations ask the legislators to agree not to speak about their proposed tax breaks until the law actually takes effect. They have the legislators sign what are called "nondisclosure agreements," meaning of course that the legislators as the ones signing these agreements will not disclose whatever the agreements are about.
I have not gotten very far, but what my reading and research tells me already is that this is an interesting story.
It has real-life implications. Here in Florida, it was the law for generations that if an insurance company wrongly forced people to sue it in order to get the benefits of their insurance policies, that those insurance companies would have to pay the attorney's fees of the people they forced to file the lawsuit. This was the rule, this is the way things were, until 2022.
On May 26, 2022, in the midst of a Florida homeowner's insurance crisis when some people could not get insurance and some people who had legitimate claims could not get their claims paid, the Florida Legislature wrote a statute that exempted the homeowner's insurance companies from this rule. By March 24, 2023, the Florida Legislature threw the rule out completely; now, every insurance company in Florida can deny claims under their policies even if in doing that, they force people to sue them to get their insurance benefits under their contracts – and the insurance companies will not have to pay the legal fees of the people they force into hiring lawyers to file these lawsuits -- and who win. I wrote about this in my books.[1]
It was not general knowledge at the time when the legislators were making these laws. The changes became known when they became law.
Were there "nondisclosure agreements" at work here? We do not know, or at least I certainly do not know, and I do not know of any way that anyone other than the insurance companies and the legislators would know one way or the other, as things stand right now.
But suppose instead of not knowing, we knew that there were no nondisclosure agreements and that our legislators here in Florida were representing their constituents rather than the corporations? Banning agreements by which legislators agree—with anyone -- not to tell their constituents what is going on with legislation would be a good first step.
[1] E.g., 2 DENNIS J. WALL, LITIGATION AND PREVENTION OF INSURER BAD FAITH § 13:14, Attorney's Fees—Prosecution of Actions Against the Insurer (Thomson Reuters West 3d Edition, 2024 Supplements in process).
The plaintiff's attorney pays Allstate's attorney's fees.
In Perez v. Allstate Fire & Cas. Ins. Co., No. C23-0681-KKE, 2024 WL 776028 (W.D. Wash. Feb. 26, 2024), Allstate petitioned for attorney's fees under Federal Rule of Civil Procedure 37(a)(5). This was a case presenting Perez's bad faith and IFCA (Insurance Fair Conduct Act) claims.
Rule 37(a)(5) provides that after a party's motion to compel is granted, "the court must, after giving an opportunity to be heard, require ... the party or attorney advising that conduct [which necessitated the motion], or both to pay the movant's reasonable expenses incurred in making the motion, including attorney's fees." Fed. R. Civ. P. 37(a)(5)(A) (emphasis added).
Allstate successfully obtained an order granting its previous motion to compel, seemingly entitling Allstate to attorney's fees under the Rule. However, as the Perez Court noted, the Rule has three exceptions to an award of reasonable expenses. The exception of interest here is that reasonable expenses will not be awarded under Rule 37(a)(5)(A) if Allstate, the movant here, had "filed the motion before attempting in good faith to obtain the disclosure or discovery without court action[.]" [Emphasis added.]
In this case, the Court held, Allstate had acted in good faith in accordance with the Rule before filing its motion to compel responses to certain of its interrogatories. "Relying primarily on the email summary of the parties' October 9, 2023 discovery conference," the Court rejected the idea that Allstate did not act in good faith in conferring on better responses to those interrogatories before Allstate filed its motion to compel concerning them. Perez, 2024 WL 776028, at *2.
In accordance with the Rule, which as noted above authorizes the Court to require the attorney advising the conduct which necessitated the motion to compel, the Court "ORDERS counsel for Perez to pay Allstate $8,875.50 by March 14, 2024." Perez, 2024 WL 776028, at *3 (emphasis added).
Parenthetically, according to the record, Allstate was paying one attorney $545.00 per hour, and another $400.00 per hour. Perez, 2024 WL 776028, at *2.
As a Magistrate Judge observed in an earlier decision in a different District Court, monetary sanctions are the norm – not the exception -- under the circumstances governed by Rule 37(a)(5), i.e., when a party is required to file and pursue a motion to compel in order to obtain the discovery to which the party is entitled. Hedgeye Risk Mgt., LLC v. Dale, No. 21-CV-3687 (ALC) (RWL), 2023 WL 4760581, at *2, *3 (S.D.N.Y. July 26, 2023) (Lehrburger, USMJ) (attorney's fees assessed against Hedgeye, the plaintiff, after the defendants filed a motion "to compel a thorough search of Hedgeye executives' laptop computers, which Hedgeye apparently had not done at all," which the Court granted in that case subject to awarding reasonable costs; as the Court noted on the subject motion for sanctions, "counsel failed to exercise sufficient quality control over collection by Hedgeye's personnel.").
The recovery of any party's attorney's fees, including in cases like Perez and Hedgeye in which attorney's fees are imposed as sanctions, is the subject of discussion in Volume 2 of DENNIS J. WALL, LITIGATION AND PREVENTION OF INSURER BAD FAITH § 13:14, Attorney's Fees—Prosecution of Action Against The Insurer (Thomson Reuters 3d Edition, 2024 Supplements in process).
If you are upset that Black men make up almost 28% of the head coaches in the National Football League, and that there might be even more Black head coaches in the NFL in the future, here are three big tips for you.
First, if you complain that the NFL is following rules that are designed to encourage Black men to become head coaches, the first thing you must know is that you have to be "aggrieved" if you want to sue under Title VII of the Civil Rights Act of 1964.
In 2011, the U.S. Supreme Court said that "aggrieved" in the Civil Rights Act means that it applies to a person who is within the "zone of interests" that are arguably protected by that law, but it excludes everyone else whose interests are not related to the statutory prohibitions. Remember, whatever you do, that the current supreme court may stand by that decision in your case.
So make sure that when someone sees you or your group that when your picture is taken, you at least look like people who played football, if not at a professional level, let alone coached it.
Second, the same law that makes it possible for a person aggrieved by an employer's alleged "unlawful employment practice" to file a complaint with the Equal Employment Opportunity Commission, also provides that the EEOC must informally investigate the complaint and keep it totally private. The reason is obvious: If a complaint is leaked to the press, for example, the effects on the reputation of the accused can be huge, to coin a word.
Moreover, the same law also provides: "Any person who makes public information in violation of this subsection shall be fined not more than $1,000 or imprisoned for not more than one year, or both."
So don't be stupid and take a chance that you or your lawyers announcing your grievance complaint are fined or imprisoned. Keep it private, if you really have a complaint that is.
Third, if you decide to file a lawsuit over your complaint, remember that you may have to pay the reasonable attorney's fees of the accused under the Civil Rights Act of 1964 if the accused becomes the prevailing party in your lawsuit.
So before you or your group -- let's call them the Bad Faith Boys or the Grievance Dudes – file a lawsuit like this, remember that some people are not intimidated easily. And that some of them play football for a living.
This article continues the review of Florida Insurance Law changes made during the 2023 Florida Legislature, so far, that began here on November 20, 2023.
REPEAL OF SO-CALLED "ONE-WAY" ATTORNEY'S FEES STATUTES.
Section 627.428 of the Florida Statutes basically allowed prevailing policyholders and other prevailing insureds to recover their attorney's fees and costs from their insurance carriers that forced them to prove their entitlement to insurance coverage.[1] Section 626.9373 of the Florida Statutes similarly allowed the recovery of fees and costs in lawsuits involving insurance coverage issues under policies issued by surplus lines carriers and on which the insureds prevailed.[2]
The 2023 Florida Legislature repealed both of these statutes. There is no legislative history extant as yet behind the repeal, but when the insurance industry issued a call for the repeal of these statutes, the industry justified their repeal by calling them "one-way" attorney's fees statutes.
AFTER REPEALING TWO "ONE-WAY" ATTORNEY'S FEES STATUTES, THE 2023 FLORIDA LEGISLATURE ADDED ONE.
New Section 86.121 makes available what the insurance industry referred to as "one-way attorney fee statutes" while advocating for the repeal of Sections 627.428 and 626.9373, discussed above. The newly available attorney's fees can only be awarded "to the named insured, omnibus insured, or named beneficiary under a policy issued by the insurer, " and only "upon rendition of a declaratory judgment in favor of the named insured, omnibus insured, or named beneficiary,"[3] and only in "an action brought for declaratory relief in state or federal court to determine insurance coverage after the insurer has made a total coverage denial of a claim."[4] Here is another condition on the availability of attorney's fees under this new statute: They are only available in declaratory relief actions brought under Chapter 86, the Florida Declaratory Judgment Act: "Such fees are limited to those incurred in the action brought under this chapter for declaratory relief to determine coverage of insurance issued under the Florida Insurance Code."[5]
WHEN TENDER BECOMES IMMUNITY.
Liability insurance carriers were given immunity in a new subsection 624.155(4).[6] The new addition to Florida's Bad Faith Statute conferred immunity upon "the insurer" in "[a]n action for bad faith involving a liability insurance claim," if the insurer "tenders the lesser" of its policy limits or the amount demanded by the claimant. The immunity applies if the tender takes place "within 90 days after receiving actual notice of a claim," and the claim or the actual notice (it is not clear which, but apparently an unsupported demand does not qualify) "is accompanied by sufficient evidence to support the amount of the claim."
THE FLORIDA LEGISLATURE ADOPTS A LEGAL DEFENSE OF "COMPARATIVE BAD FAITH."
In 2023, the Florida Legislature enacted a "duty to act in good faith" in matters involving information, demands, setting deadlines, and "in attempting to settle the claim[.]"[7] Although the new legislation did not make these newly made legal duties actionable, the 2023 Florida Legislature made these new "good faith duties" for "[t]he insured, claimant, and representative of the insured or claimant" to apply in "any bad faith action[.]"[8]
The focus of these new statutory provisions can only be understood in the context of Florida Insurance Bad Faith Law which has always focused on the extracontractual or bad faith exposure of the insurance company in the face of all such conduct.
The central issue in insurance bad faith failure-to-settle cases in Florida, as elsewhere, has always been whether the insurance carrier has attempted in good faith to settle claims, when under all the circumstances of the claim, the carrier could and should have done so, had the carrier acted fairly and honestly toward the insured and with due regard for her or his interests.[9] That context explains why the 2023 Florida Legislature fashioned a legal duty that makes certain conduct subject to a determination of whether that conduct is legally taken in good faith, namely, in furnishing "information regarding the claim, in making demands of the insurer, in setting deadlines, and in attempting to settle the claim."[10] Under the language of the new subsection, violation of a new legal duty is now a comparative defense to the insurer's own bad faith.
& 6. TWO MORE, BUT THEY'RE NOT REALLY WHAT YOU MIGHT CALL "INSURANCE" STATUTES, ALTHOUGH THEY DO HAVE AN IMPACT ON INSURERS.
The 2023 Florida Legislature shortened the statute of limitations that applies to an action founded on negligence to two from four years.[11]
The 2023 Florida Legislature also rewrote the Florida Comparative Fault Statute, Section 768.81. It limited comparative negligence to cases involving 50 percent or less of the plaintiff's adjudicated "fault," and it reintroduced contributory negligence as a complete defense in Florida negligence litigation where the person suing is found to have more fault than 50 percent for his or her own harm.[12]
These are the most significant changes wrought by the 2023 Florida Legislature to Florida Insurance Law, and this review has included a couple of other significant changes as well. More detailed reviews of all these changes can be found in Volumes 1 and 2 of DENNIS J. WALL, LITIGATION AND PREVENTION OF INSURER BAD FAITH (West Publishing Company 3d Edition and 2023 Supplements), especially in Chapters 3, 5, 9, and 11. Many of the different and voluminous 2023 Florida Insurance Law changes are also brought into the sunlight in the various forthcoming editions of CATASTROPHE CLAIMS: INSURANCE COVERAGE FOR NATURAL AND MAN-MADE DISASTERS, and Insurance Litigation Reporter.
[9] This is a summary of the express language of the Bad Faith Statute, which remains in place even after the newly enacted Subsection (5). It is also an application of the express language of the unchanged Florida Standard Jury Instruction 404.4, titled "Insurer's Bad Faith (Failure to Settle)."
[10] Fla. Stat. Ann. § 624.155(5)(b)1, enacted by 2023 Fla. Sess. Law Serv. Ch. 2023-15, § 4 (C.S.C.S.H.B. 837) (West).
[11] Fla. Stat. Ann. 95.11(4)(a) (West), as amended by 2023 Fla. Sess. Law Serv. Ch. 2023-15 § 3 (C.S.C.S.H.B. 837) (West).
[12] Fla. Stat. § 768.81(2) & (6) (West), as amended by 2023 Fla. Sess. Law Serv. Ch. 2023-15 § 9 (C.S.C.S.H.B. 837) (West).
In Minnesota Life Ins. Co. v. Alexander, No. 2:22cv207, 2023 WL 6290820 (E.D. Va. Sept. 25, 2023) the Court allowed a life insurance company to interplead various entities which did or could claim to be beneficiaries. Minnesota Life, 2023 WL 6290820, at *4.
But the Court did not allow the life insurance company to recover its attorney's fees in the interpleader. The Court ruled, in a case of apparent first impression within the Fourth Circuit, that the interpleading insurance company cannot recover its fees and costs where it is acting in the ordinary course of business in bringing the interpleader. That was the case here, the Court ruled. Minnesota Life, 2023 WL 6290820, at *4-*5.
Situations involving Multiple Claimants including but not limited to interpleader actions, are examined in 1 DENNIS J. WALL, LITIGATION AND PREVENTION OF INSURER BAD FAITH § 3:45 (West Publishing Company 3d Edition, 2023 Supplements).
This article continues the reporting in this space on how and what the Florida Legislature has done toward denying policyholders their attorney's fees and immunizing insurance carriers in 2022 and 2023 -- so far.
Effective December 16, 2022, an insured's right to recover attorney's fees as the prevailing party in an action against its, her, or his insurance carrier was amended with deadly precision, eliminating that right with respect to property insurance carriers. Section 627.428 – the Florida statute which broadly provides for the recovery of attorney's fees by insureds prevailing in lawsuits with their insurance companies – was amended to eliminate the recovery of attorney's fees against property insurers with the addition of a new subsection (4), which reads in full as follows:
In a suit arising under a residential or commercial property insurance policy, there is no right to attorney fees under this section.[1]
In 2023, as noted in the footnote, Section 627.428 was repealed entirely, as to all insurance carriers in Florida.
Similarly, identical language was added to the Florida statute governing recovery of a prevailing insured's attorney's fees from a property insurance surplus lines carrier:
In a suit arising under a residential or commercial property insurance policy, there is no right to attorney fees under this section.[2]
As was noted in the above footnote, Section 626.9373, too, has been repealed by the 2023 Florida Legislature.
Related developments in Florida and in Bad Faith Laws across the United States are explored in 2 DENNIS J. WALL, LITIGATION AND PREVENTION OF INSURER BAD FAITH § 13:14 Attorney's Fees--Prosecution of Action Against the Insurer (3d Edition West Publishing Company, 2023 Supplements in process).
[1] Fla. Stat. § 627.428(4), newly added by 2022 Fla. Sess. Law Serv. Ch. 2022-271, § 13 (S.B. 2-A) (WEST), effective December 16, 2022. Section 627.428 has since been repealed. 2023 Fla. Sess. Law Serv. Ch. 2023-15, § 11 (C.S.C.S.H.B. 837) (West). It is uncertain when this repeal took effect or will be construed to take effect. See id., § 29 (savings clause as to "right[s] under an insurance contract," stated not to be construed to "impair" any such rights in effect on or before March 24, 2023, the effective date of this act and the date this act became a law; act stated applicable respecting such rights "under an insurance contract … issued or renewed after the effective date of this act.").
[2] Fla. Stat. § 626.9373(3), amended by 2022 Fla. Sess. Law Serv. Ch. 2022-271, § 6 (S.B. 2-A) (WEST), effective December 16, 2022. Section 626.9373, too, has since been repealed. 2023 Fla. Sess. Law Serv. Ch. 2023-15, § 10 (C.S.C.S.H.B. 837) (West). It is uncertain when this repeal took effect or will be construed to take effect. See id., § 29 (savings clause as to "right[s] under an insurance contract," stated not to be construed to "impair" any such rights in effect on or before March 24, 2023, the effective date of this act and the date this act became a law; act stated applicable respecting such rights "under an insurance contract … issued or renewed after the effective date of this act.").
The question of bad faith involves insurance carriers' timely investigation and evaluation of claims against policyholders. In many jurisdictions, the question of bad faith also involves the carrier's conduct before and after the bad faith lawsuit is filed. See generally2 DENNIS J. WALL, LITIGATION AND PREVENTION OF INSURER BAD FAITH§ 9:6, The Question of Bad Faith -- Timely Investigation and Evaluation Before And After The First-Party Insurer is Sued for Bad Faith(West Publishing Co. 3d Edition, 2022 Supplements in process).
An opportunity for extracontractual exposure based on investigation and evaluation came in Nikfard v. State Farm Fire & Casualty Co.,[1] a first-party case involving loss from a fire. The fire in that case damaged a rental house owned by the plaintiff policyholder, who made a claim for the damage caused by the fire. His "first-party property insurance" carrier accepted coverage. The carrier recommended that the policyholder contact a certain general contractor who doubled as an insurance restoration specialist, which he did.
The g.c. prepared a preliminary estimate of the cost of restoration of the policyholder's house, using a computerized program called Xactimate. The Xactimate program is familiar both to insurance companies and to coverage practitioners.
In this case, the evaluation was only intended to be preliminary. It was never intended to be the basis for the g.c. performing the restoration work. The preliminary evaluation was $149,900.86.[2] The carrier seized upon this figure and this computer report and never let go. However, the evidence showed that the repairs would realistically take at least $100,000.00 more than that before restoration was finished on this particular house.
In fact, the restoration project ultimately cost $334,470.00. Before the project ended, the carrier paid $174,071.94.
Before the case was over, the carrier would pay $429,702.32.
The policyholder sued, alleging several claims. One was for breach of contract. He prevailed on this claim and received $160,398.06, which was the difference between what the project ultimately cost and what the carrier paid.[3]
The policyholder's final claim among several claims he alleged, was brought under the Consumer Protection Act in Washington. This claim was successful in generating an award of the policyholder's attorney's fees. He recovered attorney's fees in the amount of $261,964.00 and costs in the amount of $7,339.36. He proved his CPA claim in part by proof of a violation of an Unfair Claim Settlement Practices Regulation which has the force of law in Washington, and generally if not identically follows the Uniform Unfair Claim Settlement Practices Acts promulgated by the National Association of Insurance Commissioners and in force across the country.[4]
In the end, the carrier's reliance on its original investigation and evaluation until the bad faith trial came to an end, cost it another quarter of a million dollars.
[1] Nikfard v. State Farm Fire & Cas. Co., No. C19-6001RSL 2021 WL 3620277 (W.D. Wash. August 16, 2021).
[4]See WALL, supra, §§ 9:14 (Express statutory causes of action) and 9:15 (Implied statutory causes of action), infra. The effects of the UCSP Acts in third-party or liability insurance cases are discussed in § 3:28, supra.)
In Elder v. State Farm Fire & Cas. Co., No. 1:19-cv-05077-SDG, 2021 WL 4048789, at *7 (N.D. Ga. August 2, 2021), a federal judge in Georgia resolved a homeowner's carrier's motion for summary judgment in favor of the carrier because the policyholder failed to perform a clear condition precedent to coverage in that case:
The parties agree the damage to the roof necessitated a full replacement. Based on its repair estimate, State Farm paid Elder $66,512.70 in actual cash value for such replacement. To receive additional replacement cost value payments, the Policy required Elder to “complete the actual repair or replacement of the damaged part of the property within two years after the date of loss.” It is undisputed that Elder has not done so. Instead, he paid a fraction of the actual cash value to McGuire for various repairs and kept the remainder of the money for himself. Accordingly, Elder has failed to satisfy an unambiguous condition precedent to recover replacement cost value under the Policy. Given these undisputed facts, no reasonable juror could find that State Farm committed a breach or that Elder is entitled to further payment.
In sum, the evidence in that case showed no genuine issue that the carrier paid the policyholder the actual cash value to replace a damaged roof that required a complete replacement. That is why the carrier gave the money which the carrier acknowledged to be due to the policyholder.
The evidence in that case also showed that the policyholder used the money for some repairs and kept the rest, in short. On this record, the policyholder did not fulfill the policy's condition precedent of "complet[ing] the actual repair or replacement of the damaged part of the property within two years after the date of loss." The carrier did not breach the policy contract; the policyholder failed to satisfy a condition precedent on this record.
The Court also entered summary judgment for the carrier on the policyholder's bad-faith insurance claim under a Georgia statute providing a bad-faith "penalty and attorney fees" for an allegedly delayed payment. Elder v. State Farm, 2021 WL 4048789, at *7 n.49. The statute might have applied to the policy at bar, but the facts of this case certainly did not.
Recently filed litigation has caused me to wonder about "bad faith" attorney's fees liability. First, let me describe the lawsuits that have caused the wondering.
In Texas, the same person or group of people reportedly filed the same lawsuit more than once challenging the legality of drive-through voting in Harris County (Houston). They filed in Texas State Court to begin with, ultimately losing at every level all the way to the Supreme Court of Texas, according to the confusing reporting. Then they filed in a U.S. District Court in Texas and they lost there. Then they filed an appeal to the Fifth Circuit Court of Appeals. My understanding is that they lost again there.
Other people have also filed their own "one-note" lawsuit but in different States, all in Federal Court. In Georgia, Pennsylvania, and Wisconsin there is a lawsuit filed in a Federal District Court in each state by the losing candidate. The same losing candidate filed in each. It is confusing, at least before looking more closely at each of these lawsuits, but apparently two are to stop counting votes and the third is for a re-count. Presumably the votes have already been counted once before the recount litigation was filed, or else there could not be a "recount" yet, but as I say, the reports are confusing.
I want to temporarily put aside the question of Federal jurisdiction to adjudicate State election matters, and concentrate here on the issue of exposure to "bad faith" attorney's fees in Federal Court.
Having laid out the facts for the moment, here now is the law. My understanding has long been that there can be exposure under Federal Rule of Civil Procedure 11, under Federal Appellate Rules and under State Court equivalents for parties and their lawyers for bad faith in litigation.
Did the defendants and their lawyers even request attorney's fees in any of these cases for having to go through a "Groundhog Day" kind of litigation?
Parenthetically, if they did not request attorney's fees, did they request some kind of sanctions for this conduct? I am not asking why the Courts did not assess attorney's fees or sanctions; I wonder if the defendants and their lawyers even asked for them. Why should the defendants have to bear the full burden of their attorney's fees for repeatedly having to defend the same losing propositions?
I am going to look into this exposure in more detail. In the interim, let's all of us keep an eye on the lawsuits being filed, and on who files them and who pays for them.
Assessing "bad faith" attorney's fees and sanctions, along with many situations requiring good faith and fair dealing, are discussed in § 2:7 in 1 Dennis J. Wall, Litigation and Prevention of Insurer Bad Faith (3d ed. and 2020 Supps. Thomson Reuters West). Attorney's fees awarded in a variety of cases are the subject of §§ 13:12 -13:14 in Volume 2, id.
This article completes the series begun here on October 6, 2020.
(InsideFlorida.org)
There was a mortgage contract at issue in the case of Madl v. Wells Fargo Bank, N.A.[1] The fact that a mortgage contract was in dispute, was not itself in dispute. There was obviously a dispute, but it was not about the central contract at issue, the plaintiffs' mortgage. The case instead was about standing to bring the lawsuit to enforce that contract.
In a unanimous opinion in this case, Florida's Fifth District Court of Appeal applied the language of Section 57.105(7). "Section 57.105(7) transforms a unilateral right into a reciprocal right so that all parties to the contract are entitled to recover attorney’s fees upon prevailing."[2] The appellate panel awarded appellate attorney's fees to the homeowners who prevailed in this action to enforce the mortgage contract against them.
As the Fifth District itself pointed out,[3] there is authority from the Fourth District which appears to stand to the contrary.
It is not clear that the Fourth District in a proper case would outright refuse to apply the express wording of of Section 57.105(7) in mortgage cases. What can safely be said is that some Fourth District cases seem to involve disputes about whether the parties before the court were all parties to the contract, or even whether the contracts at issue were proven to exist in the first place. In Madl, there was no dispute but that the appellants and the appellees were parties to the mortgage contract that existed in that case.
To the extent that there is a conflict among the district courts of appeal in Florida, it will likely be decided by the Supreme Court of Florida.
Attorney's fees are discussed in §§ 13:12 through 13:14 in 2 Dennis J. Wall, Litigation and Prevention of Insurer Bad Faith (3d ed. and 2020 Supps. Thomson Reuters West).
Fannie Mae and Freddie Mac wrote the Uniform Mortgage Instruments. These contracts are used in the sale and purchase of almost every home in the United States with a mortgage. These Uniform Mortgages provide that attorney's fees belong to the lenders.[1]
These provisions have two results. The first is to protect banks and mortgage companies from incurring attorney's fees when they are sued on their mortgage loans.
The second is to make homeowners liable to pay including the lender's attorney's fees when they sue on the mortgage loans they take.
Some States have made attorney's fees availability a much more balanced remedy. Some States make attorney's fees available whenever contracts of virtually any kind -- not just mortgages -- authorize attorney's fees for a large corporation. The way they do this is to make attorney's fees available to other parties to a contract whenever one party has written its contract to allow itself to collect attorney's fees in a suit filed by other parties to that contract.[2]
Parenthetically, in many or most such cases, it is the large corporate party that wrote the contract.
Florida Statute Section 57.105(7) is an example of fee-availability-shifting laws. On its face, the Florida statute applies to "contracts" which authorize attorney's fees for only one party to the contract:
(7) If a contract contains a provision allowing attorney’s fees to a party when he or she is required to take any action to enforce the contract, the court may also allow reasonable attorney’s fees to the other party when that party prevails in any action, whether as plaintiff or defendant, with respect to the contract. This subsection applies to any contract entered into on or after October 1, 1988.[3]
To be continued. Attorney's fees are discussed in §§ 13:12 through 13:14 in 2 Dennis J. Wall, Litigation and Prevention of Insurer Bad Faith (3d ed. and 2020 Supps. Thomson Reuters West).
[1]See, e.g., Dennis J. Wall, Lender Force-Placed Insurance Practices § 4.4, titled Attorneys and Lender Force-Placed Insurance Practices, at 134-37 (American Bar Ass'n Pub. 2015).
[2] I have proposed exactly this remedy as a solution to part of the lender force-placed insurance practices problem. Wall, Lender Force-Placed Insurance Practices, supra, § 7.12, titled Workers Are Worth Their Wages: Paying the Fees of Homeowners' Attorneys in the Great Recession, at 276-80.
As promised, this is the hidden story embedded in the attorney's fees application and award in Baker v. Allstate Ins. Co., No. 2:19-cv-08024-ODW (JCx), 2020 WL 978729 (C.D. Cal. February 28, 2020). Let's try to break this down into the way the District Judge must have seen it all.
First, on November 26, 2019, Allstate's attorneys filed an "Application" requesting sanctions in the amount of $6,370.00 against the plaintiffs' former counsel in the case. The lead attorney for Allstate testified in a declaration submitted with the Application at that time.
Allstate's lead attorney testified in November that only he and another attorney for a total of two attorneys handled Allstate's Application. Baker, 2020 WL 978729, at *1. After holding a hearing on the request for sanctions in December, the Court granted the request.
The month after the Application and testimony in November, and shortly after the December hearing at which the sanctioned former counsel "also agreed to pay monetary sanctions," Allstate's lawyers requested a new amount of $41,748.00. They represented to the Court that their firm actually "had three attorneys bill on this matter[.]" Baker, 2020 WL 978729, at *3 (emphasis added).
Besides testifying that there were only two Allstate lawyers involved in presenting the Application, the lead attorney for Allstate also testified in November that the Application was the product of 13 hours. The Court noted that this representation was "made under the penalty of perjury[.]" Baker, 2020 WL 978729, at *3. A month or so later, Allstate's lawyers were representing to the Court that they had actually "expended 33.2 hours to bring [Allstate's] Application." The Court characterized this later representation as seeking "a do-over[.]" The Court also described this as the lawyers' "attempt to back door an additional 20.2 hours[.]" Baker, 2020 WL 978729, at *3.
The sanctioned former counsel took the position that these representations were not what he had agreed to when he agreed to monetary sanctions based on the Application and the initial testimony of Allstate's lawyers about how many lawyers, how many hours, and how much money Allstate claimed in the first place. He requested "that the Court award Allstate no more than its original request of $6370." Baker, 2020 WL 978729, at *3.
However, the Court did not grant his request.
Instead, the Court applied its understanding of the rule in the Ninth Circuit that "[g]enerally, in assessing attorneys' fees, the court should calculate the 'lodestar' figure," which involves multiplying the number of hours reasonably claimed by a reasonable hourly rate. Even after that, the Court noted, it could still adjust the claim down depending on "reasonableness." Baker, 2020 WL 978729, at *2.
Significantly, the Court proceeded to apply the general rule to this particular case. The Court considered the lawyers' higher request for fees in this particular case anyway. Along the way to a higher award than Allstate originally requested and its lawyers testified, the Court reduced the lawyer's newly claimed hours because certain hours "provide no description," other hours "were unnecessarily incurred," some hours were nothing more than "block-billing," and still other hours were submitted "for travel time and straightforward research, tasks which do not require great litigation skill." Baker, 2020 WL 978729, at *3-*5.
It is also significant that the Court "lowered" every one of Allstate's lawyer's hourly rates to $420.00/hour.
Then the Court awarded $17,808.00 in attorney's fees. Baker, 2020 WL 978729, at *5.
An insurance carrier received a lodestar award of attorney's fees for bad faith of the plaintiffs' former counsel in Baker v. Allstate Ins. Co., No. 2:19-cv-08024-ODW (JCx), 2020 WL 978729 (C.D. Cal. February 28, 2020). Here is the concise summary of the reasons behind the award from the Court's own opinion:
On December 16, 2019, the Court determined [Plaintiffs' former counsel] acted in bad faith by sending numerous profanity-laced emails, using discriminatory epithets, and repeatedly threatening physical violence against Allstate's witnesses, attorneys, and their families purportedly as negotiation tactics. [Citation omitted.] Accordingly, exercising its inherent powers, the Court ruled that Allstate was entitled to costs and attorneys' fees for bringing its Application. [Citation omitted.] At the hearing, [Plaintiffs' former counsel] also agreed to pay monetary sanctions.
Baker, 2020 WL 978729, at *2. Allstate then filed a motion for attorney's fees and costs. In response, the Court entered a lodestar attorney's fees award of $17,808.00 to Allstate.
The Court's response includes an embedded hidden tale of the hours that ended up being submitted to the Court for the award. That tale deserves telling. The next post in this space will afford a larger space fit for the telling.
The Consumer Financial Protection Bureau has proposed a new "Rule 11," in its proposed new rule at 12 CFR 100618(g). Supposedly the new rule is intended to affect debt collectors under the Fair Debt Collection Practices Act (FDCPA).
CFPB's proposed new rule is not authorized by the Fair Debt Collection Practices Act or otherwise. The proposed new Section 100618(g) regulates attorneys and not debt collectors.
The proposed rule provides immunity to debt collection attorneys, which the CFPB is not authorized to do. It does not "prescribe rules with respect to the collection of debts by debt collectors, as defined[.]" The proposed new rule relies on defining "meaningful attorney involvement case law," but that interpretation is up to judges to decide, and not to the CFPB.
Further, the CFPB's proposed new "Rule 11" in new 12 CFR 100618(g) omits relevant and important safeguards on attorney conduct prescribed by Rule 11 for all forms of attorney conduct in litigation of any kind in federal courts.
These are just some of the problems raised by this new "Rule 11."
A stipulated protective order ("SPO") in Manchester v. Sivantos GMBH, No. CV 17-5309-ODW (JEMx), 2019 WL 1598754 (C.D. Cal. Jan. 30, 2019) (McDermott, USMJ), reached out to specifically provide for secrecy of "source code":
The Stipulated Protective Order (Dkt. 262) governs the production and copying of source code documents. Paragraph 2.9 defines source code material as :
extremely sensitive “Confidential Information or Items” representing computer code and associated comments and revision histories, formulas, engineering specifications, or schematics that define or otherwise describe in detail the algorithms or structures of software or hardware designs, disclosure of which to another Party or Non-Party would create a substantial risk of serious harm that could not be avoided by less restrictive means.
Manchester, 2019 WL 1598754, at *1.
There are a couple of issues with this Magistrate Judge's opinion. One issue is that the SPO absolutely did not govern the production and copying of source code documents or any other documents, for that matter; the Federal Rules of Civil Procedure govern the production and copying of any documents at all as well as the discovery of witnesses' testimony through depositions, affidavits, and declarations.
Another issue is what exactly is the "serious harm that could not be avoided" if source code documents are disclosed? Personal injury? Most likely not. Property damage? Again, most likely not. Harm that would be recognized as grounds for a protective order under the Federal Rules of Civil Procedure? We do not yet know, even now, the full extent of what the parties agreed in their SPO would be "serious harm" that would follow from the disclosure of source code documents.
However, we do know that the Magistrate Judge in this case required the production and copying of 85 particular source code documents. The Magistrate Judge went so far as to impose sanctions on a party for its failure to produce hard copies of the source code documents in this case. The Magistrate Judge's ruling that production of the hard copies was required in this case is based on Local Rules in addition to the terms of the SPO, Manchester, 2019 WL 1598754, at *2-*3, before his extended discussion rejecting waiver contentions.
The SPO in the Manchester case also provided its own "dispute resolution procedure," to use the Magistrate Judge's description. Manchester, 2019 WL 1598754, at *5. The Magistrate Judge awarded the opposing party's attorney's fees as sanctions under both Federal Rule of Civil Procedure 37(a) and the SPO in this case.
At least in the award of sanctions, the Federal Rules of Civil Procedure were treated as the SPO's equal in authority in this decision.
In Xtreme Protection Serv's, LLC v. Steadfast Ins. Co., ___ N.E.3d ___, No. 1-18-1501, 2019 WL 1976482, 2019 IL App (1st) 181501 (Ill. 1st DCA, 6th Div., May 3, 2019) (stated Not Final), the Illinois District Court of Appeal applied the prevailing test in Illinois for whether the insured is entitled to have its own independent counsel at the expense of the liability carrier.
The Court applied the settled test of asking "whether the insurer's interests would be furthered by providing a less-than-vigorous defense" to the allegations in the underlying case against the insured.
If the answer to that question is in the affirmative, then the carrier has the responsibility to pay for the insured's independent defense counsel and loses the right to provide defense counsel of its own choosing.
The trial judge applied the same test and, in a relatively rare procedural ruling, entered judgment on the pleadings in favor of the insured.
The appellate court applied the same test, as noted, and affirmed.
This test is gathering adherents outside of Illinois. See generally 1 Dennis J. Wall, Litigation and Prevention of Insurer Bad Faith, § 3:7 Informing the Insured: Providing Independent, "Mutually Agreeable" Counsel to the Insured (3d edition Thomson Reuters West, 2019 Supplements in process).
Or at least one Federal Judge just said so in Lawrence v. ACE Am. Ins. Co., No. 8:18-cv-738-T-24, 2018 WL 6192190, at *8-*9 (M.D. Fla. November 28, 2018):
ACE moves to dismiss this claim, arguing that Florida does not recognize a cause of action for equitable contribution between co-insurers. The flaw in this argument, however, is that Florida does not recognize a cause of action for equitable contribution by co-insurers in order to recover defense costs. [Federal citation omitted.] USAA is not seeking to recover its defense costs in the underlying litigation, and as such, this argument for dismissal has no merit.
Florida does recognize a cause of action for equitable contribution by co-insurers for the amounts the insurer paid to indemnify the insured.
In Goldman v. United Services Automobile Association, 244 So. 3d 310 (Fla. 4th DCA 2018), review dismissed, No. SC18-1309, 2018 WL 3831364 (Fla., August 8, 2018), a Florida intermediate appellate court applied the Supreme Court of Florida's admonition that "bad faith" is simply not required to assess an insured's attorney's fees under the Florida Statutes.
In Goldman, the appellate court pointed out the crux of the matter in its view: The carrier in that case, a first-party carrier, acted appropriately and promptly but was deprived of even the opportunity to disclaim coverage.
The insurance policy at issue in the case was a homeowner's policy. The policyholders' damage claim to coverage under their homeowner's policy came out of a plumbing leak. The carrier investigated the claim, issued a check, and then "[w]ithout informing their insurer that they disputed the amount of the payment, the homeowners filed a lawsuit for breach of the insurance policy." Goldman v. United Services Automobile Association, 244 So. 3d 310, 311 (Fla. 4th DCA 2018), review dismissed, No. SC18-1309, 2018 WL 3831364 (Fla., August 8, 2018).
The carrier was served with the policyholders' suit papers. It filed a motion to compel an appraisal. The result of the appraisal was an award to the policyholders. The appellate court observed that the carrier "timely paid the appraisal award." For that reason as well, the trial court granted the carrier's motion for summary judgment against the homeowners'-policyholders' alleged claim that the carrier had breached the homeowner's policy in that case. Goldman v. United Services Automobile Association, 244 So. 3d 310, 311 (Fla. 4th DCA 2018), review dismissed, No. SC18-1309, 2018 WL 3831364 (Fla., August 8, 2018).
The appellate court affirmed:
Here, the insurer valued the loss and paid the claim based on that valuation. The homeowners did not object. Until the filing of the complaint, the insurer was unaware of a disagreement with the damage valuation. Once informed, the insurer demanded appraisal and paid the appraisal.
There was never a breakdown in the claims adjusting or communications process, nor was there a refusal to pay the claim. “It is only when the claims adjusting process breaks down and the parties are no longer working to resolve the claim within the contract, but are actually taking steps that breach the contract, that the insured may be entitled to an award of fees under section 627.428, Florida Statutes.”
Goldman v. United Services Automobile Association, 244 So. 3d 310, 311 (Fla. 4th DCA 2018), review dismissed, No. SC18-1309, 2018 WL 3831364 (Fla., August 8, 2018).
Following the Supreme Court's admonition that an award of attorney's fees does not mean bad faith in Florida, and of course because there was no bad faith shown on the record of the case before it, the appellate court followed the law that holds that "it is the incorrect denial of benefits that triggers an award of attorney's fees under section 627.428," at least against a first-party carrier like the homeowner's carrier in the Goldman case. Goldman v. United Services Automobile Association, 244 So. 3d 310, 312 (Fla. 4th DCA 2018), review dismissed, No. SC18-1309, 2018 WL 3831364 (Fla., August 8, 2018).
The moral of this story is a simple one, really: As a practice point in presenting the law, practitioners should be sensitive to how their presentation appears to their audience for attorney's fees, i.e., the trial judge, because judges naturally resist being led where they do not need or perhaps want to go. "[H]ere, the insured never gave the insurer the opportunity to incorrectly deny the benefits before filing a lawsuit." Goldman v. United Services Automobile Association, 244 So. 3d 310, 311 (Fla. 4th DCA 2018), review dismissed, No. SC18-1309, 2018 WL 3831364 (Fla., August 8, 2018).
To illustrate this practice point, the appellate court and the trial court were in complete agreement in this particular case that the homeowners'-policyholders' lawsuit "'was merely a preemptive lawsuit intended to obtain attorney's fees for the usual efforts in negotiating an insurance claim.'" Goldman v. United Services Automobile Association, 244 So. 3d 310, 311-12 (Fla. 4th DCA 2018), review dismissed, No. SC18-1309, 2018 WL 3831364 (Fla., August 8, 2018). "Here, the circuit court found that was the exact reason the lawsuit was filed. Thus, the court properly granted summary judgment in favor of the insurer." Goldman v. United Services Automobile Association, 244 So. 3d 310, 312 (Fla. 4th DCA 2018), review dismissed, No. SC18-1309, 2018 WL 3831364 (Fla., August 8, 2018).
In Life Changing Ministries, Inc. v. Canopius US Ins., Inc., No. 5:15-cv-59-Oc-30PRL, 2016 WL 6947341 (M.D. Fla. November 28, 2016) the facts involved a sinkhole claim that the carrier initially denied, the policyholder filed suit, and then the carrier paid. The upshot was that statutory attorney's fees were mandated under Fla. Stat. § 626.9373.
So the District Court awarded attorney's fees under the statute providing that where a policyholder prevails on an insurance claim against a surplus lines carrier in Florida, that policyholder is entitled to its reasonable attorney's fees.
Reluctantly.
Reluctantly, because the carrier initially denied coverage based on what the District Judge called a "thorough investigation." The carrier's investigation included an engineering report prepared in accordance with prevailing engineering practices, the policyholder's own experts said. The carrier paid the claim after the policyholder's lawyer sent it a report prepared by an engineer retained by the policyholder. Unfortunately for the carrier's exposure to attorney's fees in this case, the carrier paid the policyholder's claim after the policyholder filed a lawsuit.
It seems kind of sneaky on the face of it, you have to agree, that the policyholder's attorney sent the report to the carrier after the 30-day "safe harbor" period had come and gone, even though the report had been prepared long before the safe harbor period began. This meant of course that the carrier had no opportunity to "cure" -- at least no opportunity based on the competing engineer's report, although of course it had 30 days to "cure" for any reason it might choose.
The Federal District Court seemed to think that the policyholder's request for statutory attorney's fees, and that the Court's own award of statutory attorney's fees in this case, was the moral equivalent if you will of consequential "bad faith" damages. Not so, Your Honor.
The award of statutory attorney's fees was mandated by the Florida Statute because this policyholder prevailed against a surplus lines carrier. Period. The policyholder did not request attorney's fees as consequential damages. As you pointed out, Your Honor, the policyholder in this case "sued for breach of contract in state court[.]" That means that the whole lawsuit was about a breach of contract which, once the policyholder's insurance claim was denied and if the policyholder prevailed on the claim that the insurance contract was breached, then under Florida case law the carrier effectively 'confessed judgment' that the contract was breached when it paid the policyholder's claim after the policyholder filed a lawsuit.
For that matter, although the policyholder served a Civil Remedy Notice of Insurer Violation (CRN) of Florida's so-called bad faith statute, nothing in your opinion reflects that this policyholder ever sued for bad faith in this case.
But as you pointed out, Your Honor, when you reach the point of actually calculating how much of an award is warranted under the evidence in this case, "[t]he Court, of course, can take this into account when determining the reasonableness of [the policyholder's] attorneys' fees." Life Changing Ministries, Inc. v. Canopius US Ins., Inc., No. 5:15-cv-59-Oc-30PRL, 2016 WL 6947341, at *5 (M.D. Fla. November 28, 2016).
Two trial judges and an appellate court in Massachusetts summarized a risk of extracontractual, "bad faith" exposure embedded in many cases across the United States whenever a liability carrier reserves its rights to deny all coverage, let alone when the liability carrier denies all coverage:
Quoting from another decision of the Superior Court, the judge sensibly observed that “an insurer cannot reserve its rights and thereby surrender control of the defense, and still reasonably expect that it will pay the same amount of legal fees that it would have paid had it accepted coverage and retained control of the defense. Through its reservation of rights, the insurer's duty to defend is transformed into a duty to reimburse its insured for reasonable attorney's fees incurred by the insured's chosen counsel.”
Rass Corp. v. Travelers Cos., No. 15-P-358, 2016 WL 6636281, at *9 n.16 (Mass. App. Ct. November 10, 2016). This statement of the risks involved is direct and to the point, but it states the prevailing law very well depending on the nature of the coverage defense which the carrier reserves. See generally 2 Dennis J. Wall, Litigation and Prevention of Insurer Bad Faith § 13.13, "Attorney's fees--Settlement or defense of third party's claim" (3d ed. Thomson Reuters West; 2016 Supplements).
In Johnson v. Omega Ins. Co. No. SC14–2124, 2016 WL 5477795 (Fla. September 29, 2016) (not released for publication in permanent law reports and subject to revision or withdrawal until released), the Florida Supreme Court held that an award of attorney's fees to a policyholder or other prevailing insured under Florida Statute § 627.428 is available regardless of proof of insurer bad faith.
Rejecting the arguments made by the carrier on appeal against long-standing precedent in Florida insurance law, the Court ratified the settled law that so long as the insured prevails, including when a wrongful disclaimer of coverage is litigated by the insured and the carrier, then the Florida Statute makes an attorney's fees award available:
Because the precedent in this area of law clearly rejects a bad faith or maliciousness requirement and the court below relied on distinguishable jurisprudence, we decline to construct an additional hurdle of bad faith for insureds to overcome. Therefore, consistent with the opinions of this Court and others, we make abundantly clear today that in the context of section 627.428, a denial of benefits simply means an incorrect denial.
Johnson v. Omega Ins. Co. No. SC14–2124, 2016 WL 5477795, at *7 (Fla. September 29, 2016).
This is a very polite way of stating the obvious. In Florida, Section 627.428 continues to operate just as it has for decades, allowing a prevailing party an opportunity to recover its attorney's fees in an action against an insurance company, such as over coverage, whether you like it or don't like it.
PART TWO: Insurance Class Action Settlement REJECTED.
The background of this insurance class action settlement is detailed in Part One, posted here on Thursday, June 24, 2016. For our purposes in exploring the Court's rejection of the insurance class action settlement, it is enough to recall that the alleged conduct of the defendant Blue Cross Blue Shield of Michigan leveraged its 60% market share into raising rates "for Blue Cross's customers and everyone else -- while preserving or expanding Blue Cross's market share." Shane Grp., Inc. v. Blue Cross Blue Shield of Mich., Nos. 15-1544/1551/1552, ___ F.3d ___, 2016 WL 3163073, at *1 (6th Cir. June 7, 2016).
The Rejected Health Insurance Class Action Settlement.
In a couple of words, the settlement in this insurance class action was betrayed by many of the "red flags" on the Class Action Settlement Checklist posted here on April 26, 2016 based on an excellent article by Howard M. Erichson, "Aggregation as Disempowerment," to be published in 92 Notre Dame L. Rev. The red flags addressed by the Sixth Circuit which were flying from the insurance class action settlement in this case concentrated on the following:
Terms that Discourage Objections.
Class Representative Bonus.
The class action settlement included "so-called 'incentive awards' to the named plaintiffs," which Blue Cross agreed not to oppose. The agreed amounts were "up to $10,000 per individual and $50,000 per organization." Shane Grp., Inc. v. Blue Cross Blue Shield of Mich., Nos. 15-1544/1551/1552, ___ F.3d ___, 2016 WL 3163073, at *2 (6th Cir. June 7, 2016).
The Sixth Circuit also categorized these "so-called 'incentive awards' to the named plaintiffs" as a "bounty." In order for the named plaintiffs to claim entitlement to their bounty, however, the Sixth Circuit expressed its concerns for the guidance of Court and counsel upon remand after the Sixth Circuit rejected the class action settlement in this case. On remand, the class counsel requesting these bounties for their named plaintiffs "must provide the district court with specific documentation -- in the manner of attorney time sheets -- of the time actually spent on the case by each recipient of the award." Otherwise there is no basis on which any court can determine whether the incentive awards are valid. Putting proof of this kind in the record will not entitle anyone to a bounty, however; it will simply provide a basis for a court to decide whether the requested award should be made. Shane Grp., Inc. v. Blue Cross Blue Shield of Mich., Nos. 15-1544/1551/1552, ___ F.3d ___, 2016 WL 3163073, at *8 (6th Cir. June 7, 2016).
Fee Fund.
The class counsel's fees and expenses, and the bounties to given to the named plaintiffs, would all be given from the settlement fund without objection from the defendant. When all was said and done, the agreed settlement fund would amount to a remaining $14,661,560 to be divided "among the three to seven million class members." Shane Grp., Inc. v. Blue Cross Blue Shield of Mich., Nos. 15-1544/1551/1552, ___ F.3d ___, 2016 WL 3163073, at *2 (6th Cir. June 7, 2016). Although the Sixth Circuit did not display the following figure in its opinion rejecting this settlement, doing the math shows without fear of contradiction that if there were seven million class members, each would get roughly $2.00 apiece.
Now for the remaining figures, I will ask you, the reader, to please do the math. Clearly the Sixth Circuit did the math when it rejected this class action settlement.
Clear Sailing Agreements.
As noted, Blue Cross agreed not to object to class counsel's fees. The defendant's agreement not to object to fees within a certain limit is known as a clear sailing agreement. In this case, Blue Cross and the class counsel reached a clear sailing agreement for Blue Cross "not to oppose class counsel's request for fees, so long as the amount of the request did not exceed approximately $10 million; …" Shane Grp., Inc. v. Blue Cross Blue Shield of Mich., Nos. 15-1544/1551/1552, ___ F.3d ___, 2016 WL 3163073, at *2 (6th Cir. June 7, 2016).
But Blue Cross agreed to more clear sailing agreements in this settlement than just for class counsel's fees. Blue Cross further agreed "not to oppose class counsel's motion for expenses, which purportedly totaled $3.5 million;" and as was already noted Blue Cross also agreed not to oppose the named plaintiffs' bounties of up to $10,000 per individual and $50,000 per organization." It will be recalled from Part 1 of this article that part of class counsel's expenses was a $2 million expert's report which counsel stipulated should be sealed.
"All of these amounts -- the fees, the expenses, and the incentive awards -- would be paid out of the settlement fund." Shane Grp., Inc. v. Blue Cross Blue Shield of Mich., Nos. 15-1544/1551/1552, ___ F.3d ___, 2016 WL 3163073, at *2 (6th Cir. June 7, 2016).
There were many other red flags about this class action settlement that attracted the appellate court's attention. "To guide the proceedings on remand," the Sixth Circuit discussed "one very significant omission and several lesser ones in the proceedings leading up to this appeal." Shane Grp., Inc. v. Blue Cross Blue Shield of Mich., Nos. 15-1544/1551/1552, ___ F.3d ___, 2016 WL 3163073, at *6 (6th Cir. June 7, 2016).
Among these things to be re-addressed on remand was class counsel's request for attorney's fees. Class counsel's time records were not provided to the District Court. Their billing records were not sealed; the records were not made available at all, the Sixth Circuit pointed out. "[C]lass counsel provided no backup whatsoever -- no time records, no descriptions of work done -- in support of their hours spent working on the case." Shane Grp., Inc. v. Blue Cross Blue Shield of Mich., Nos. 15-1544/1551/1552, ___ F.3d ___, 2016 WL 3163073, at *8 (6th Cir. June 7, 2016).
Class counsel did provide one sheet of paper per firm listing their hourly rates, however. Their claimed rates "are exceedingly high" in the eyes of the appellate court if not the trial court. "[S]ome 20 lawyers billed the class more than $700 per hour, and some billed more than $900 per hour;" many paralegals charged even more "than the rates charged by the top 1% of paralegals nationwide." The fee request even included hourly rates for some of the staff.
On top of these rates, the trial court even multiplied the fee request by using a lodestar calculation.
This was all too much for the appellate court but it seemed to bedazzle the trial court in this case, so much so that on remand the appellate court provided some guidance for counsel and Court in regard to the attorney's fees request here:
These are Bentley rates, not Cadillac rates, and if a district court thinks they are relevant to the fees that unnamed class members should actually pay, the court must explain why.
Shane Grp., Inc. v. Blue Cross Blue Shield of Mich., Nos. 15-1544/1551/1552, ___ F.3d ___, 2016 WL 3163073, at *7 (6th Cir. June 7, 2016).
In sum, the Sixth Circuit sent messages to the class lawyers and the court below along the following clearly drawn lines. The lawyers must support their class action settlement and their secrecy requests with more than their conclusions if they want either their settlement or any of their requests to be approved. The trial court must consider the settlement and the requests in detail, not simply put its stamp of "perfunctory" approval on them.
In Spearman v. Progressive Classic Ins. Co., 276 Or.App. 114, 127-28, 366 P.3d 821, 828 (Or. Ct. App. 2016), the appellate court held en banc that by disputing the types of damages alleged by the plaintiff, the defendant U.M. carrier was not disputing U.M. "coverage" so as to entitle the insured to attorney's fees in Oregon even though the dispute could include a contention that the insured was not entitled to a certain type of damages at all:
Our determination that “damages due the insured” is a reference to the amount of damages (if any) that the insured would be entitled to recover from the uninsured motorist provides a clear answer to the remaining question. Although we agree with plaintiff that defendant's pleadings were enough to put at issue the possibility that plaintiff would recover no benefit in the UM action, the allegations raised issues only as to the damages that the insured would be entitled to recover from the uninsured motorist.
In its answer, in response to plaintiff's allegation that he sustained noneconomic damages, defendant admitted that plaintiff sustained “some” injury in the collision with the uninsured motorist but disputed “the nature and extent of [p]laintiff's alleged injuries.” On its face, that allegation disputes only the amount of plaintiff's damages. Although plaintiff contends the allegation could have permitted a determination that plaintiff is entitled to zero noneconomic damages, ORS 742.061(3) does not preclude disputes about individual categories of damages. A dispute about whether plaintiff sustained economic damages would still be a dispute regarding the amount of the damages due the insured as a result of the collision.
Next, in response to plaintiff's allegation of economic damages for medical expenses, defendant's answer disputed “the reasonableness and necessity of some of [p]laintiff's accident-related medical expenses.” In response to two of plaintiff's requests for admissions, defendant similarly disputed some, but not all, of plaintiff's alleged injuries: “Admit that Plaintiff sustained ‘some’ injury as a result of the accident alleged in the Complaint; however, Defendant denies the nature and extent of Plaintiff's injuries” and “Admit that some of the treatment was necessary; Defendant denies the reasonableness, necessity, relatedness and extent of some of Plaintiff's treatment.” Again, facially, those allegations dispute only the amount of plaintiff's damages.
The Alaska Supreme Court just answered these two certified questions, effectively letting the tires out of the "Buss" for liability carriers seeking to recoup defense fees and costs in cases where they defend counts and claims which they do not cover, even with their insureds' concurrence and agreement to the carriers' reserved rights of reimbursement, when at the same time the carriers defend counts and claims their policies affirmatively do cover:
Does Alaska law prohibit enforcement of a policy provision entitling an insurer to reimbursement of fees and costs incurred by the insurer defending claims under a reservation of rights, where (1) the insurer explicitly reserved the right to seek such reimbursement in its offer to tender a defense provided by independent counsel, (2) the insured accepted the defense subject to the reservation of rights, and (3) the claims are later determined to be excluded from coverage under the policy?
If the answer to Question 1 is “Yes,” does Alaska law prohibit enforcement of a policy provision entitling an insurer to reimbursement of fees and costs incurred by the insurer defending claims under a reservation of rights, where (1) the insurer explicitly reserved the right to seek such reimbursement in its offer to tender a defense provided by independent counsel, (2) the insured accepted the defense subject to the reservation of rights, and (3) it is later determined that the duty to defend never arose under the policy because there was no possibility of coverage?
The answer to both questions is “yes.”
Attorneys Liability Protection Society, Inc. v. Ingaldson Fitzgerald, P.C., No. S–15683, 2016 WL 1171299, at *1 (Alaska March 25, 2016) (STATED BY WESTLAW AS NOT PRECEDENT BECAUSE "THE CASE WAS ENTERED IN THE WESTLAW DATABASE BEFORE THE TIME FOR REHEARING HAD EXPIRED.").
So, read the answers in this case for what they are worth in other words. Assuming that these answers to certified questions remain unchanged, Alaska will clearly join the minority view on these questions.
In Aspen Air Conditioning, Inc. v. Safeco Ins. Co. of Am., 170 So. 3d 892 (Fla. 3d DCA 2015), a Florida appellate court assessed sanctions of attorney's fees incurred by an insurance company on appeal "defending against allegedly baseless assertions contained in the Appellant's Initial Brief …."
The appellate court examined the appellant's charge of misrepresentation by the insurance company's lawyer. Following its detailed examination of the record, the appellate court wrote that the appellant's allegations about the insurance company's lawyer were in bad faith.
The court awarded the insurance company its attorney's fees it incurred in having to defend against these allegations, the award being made payable both by the plaintiff and its counsel:
Because we find that Aspen's allegations are without a good faith basis, sanctions against Aspen and its counsel are warranted under both section 57.105 and Rule 9.410.
Aspen Air Conditioning, Inc. v. Safeco Ins. Co. of Am., 170 So. 3d 892, 893-94 (Fla. 3d DCA 2015). And again, the court wrote in the end that "[a]ccordingly, we award a reasonable attorney's fee, including prejudgment interest," to be paid to the insurance company in accordance with the cited Florida Statute and Florida Appellate Rule.
In Revi, LLC v. Chicago Title Ins. Co., ___ S.E.2d ___, 2015 WL 5448640, *1 (Va. September 17, 2015), the Supreme Court of Virginia determined that "Code § 38.2-209(A) requires a trial judge, rather than a jury, to determine whether an insurer committed a bad faith breach of an insurance contract warranting an award of attorney's fees to the insured."
The narrow application of this ruling limits bad-faith-breach attorney's fees awards to the discretion of trial judges rather than juries in Virginia, of course. However, the application that this holding will receive may be wider than the borders of Virginia. The holding may have persuasive effect in jurisdictions in which judges are perhaps less receptive to insurance companies when determining bad faith, whether the bad faith determination is made pursuant to a statute or pursuant to common law or equity.
This is the language which the Supreme Court of Virginia construed, with emphasis supplied by the Court in the quotation below:
[I]n any civil case in which an insured individual sues his insurer to determine what coverage, if any, exists under his present policy ... or the extent to which his insurer is liable for compensating a covered loss, the individual insured shall be entitled to recover from the insurer costs and such reasonable attorney fees as the court may award. However, these costs and attorney's fees shall not be awarded unless the court determines that the insurer, not acting in good faith, has either denied coverage or failed or refused to make payment to the insured under the policy.
*3 (Emphasis added.)
Revi, LLC v. Chicago Title Ins. Co., ___ S.E.2d ___, 2015 WL 5448640, *3 (Va. September 17, 2015). [As noted, emphasis by the Supreme Court of Virginia.]
Many States and Commonwealths have similar statutes, and some have common law rules similar to the thrust and purpose of the Virginia statute. The Revi case may reach far beyond the borders of Virginia before long.
In a decision on August 10, 2015, the California Supreme Court answered the following question of great public importance, tweaked here with a question mark at the end of the quotation:
Who is "unjustly" enriched if independent counsel representing the insured, but compensated by the insurer, are allowed to retain payments that were unreasonable and unnecessary for the insureds' defense against any claim?
The high Court's answer to its own question was that the lawyers are the ones who are unjustly enriched in such a case. The Court was careful to point out that it was assuming "unreasonable and unnecessary" fees for the sake of argument, so to speak.
Further, the California Supreme Court emphasized the unique posture of the case before it. The trial court entered an order requiring the lawyers to bill "reasonable and necessary" fees in their defense of insureds in their role as Cumis or conflict counsel, and allowing the carrier to sue the lawyers "in a subsequent reimbursement action" if the lawyers' fees were unreasonable and unnecessary. The California Supreme Court accepted this ruling as a "given" and limited themselves to addressing the question whether the carrier may seek reimbursement directly from the lawyers as distinct from, say, the insured. Hartford Cas. Ins. Co. v. J.R. Marketing, L.L.C., ___ Cal. ___ ___, ___ P.3d ___, 190 Cal. Rptr. 3d 599, 2015 WL 4716917, *6 (2015).
To say again, the California high Court held that the carrier could sue the lawyers in this case. Future cases may present different trial court orders and differing circumstances. Some of those cases will arise in California and some will not. Until then, it is fair to say that J.R. Marketing is unique.
Maronda Homes, Inc. of Florida is a homebuilder with thirty subsidiaries operating in five States. Maronda obtained a commercial automobile insurance policy from Progressive Express Insurance Co. There came a time when Maronda “and three other defendants” were sued for negligence by a person or persons injured in an automobile accident.
It is unclear who the “three other defendants” were, but apparently Progressive provided all four (4) with a defense in the underlying case. Maronda objected and Progressive hired a separate defense lawyer for Maronda.
After the new lawyer advised Maronda that “’he would be reluctant to take positions in litigation that were adverse to Progressive because he did not want to jeopardize his business relationship with Progressive,’” Maronda declined the defense proffered by Progressive on the ground that the defense was “’legally insufficient.’” Maronda then hired its own defense attorney to defend it in the underlying case.
Maronda filed an action for declaratory relief, urging that as a result of these developments, Progressive had breached the liability insurance policy which Progressive issued to Maronda. Maronda also requested that Progressive pay “damages consisting of the attorney’s fees and costs” which Maronda paid its personal defense counsel in the underlying case. Maronda Homes, Inc. v. Progressive Exp. Ins. Co., No. 6:14-cv-1287-Orl-31TBS, 2015 WL 1565299, *1 (M.D. Fla. April 8, 2015)(Thomas B. Smith, USMJ). It is not known whether the underlying case had concluded, although that result would not have affected the decision at bar.
Progressive filed a motion to compel the deposition of one Gagat, Moranda’s and its subsidiaries’ vice president and controller. Progressive sought “to depose Gagat concerning the allegedly inadequate defense it provided Maronda in the accident case”. Maronda Homes, Inc. v. Progressive Exp. Ins. Co., No. 6:14-cv-1287-Orl-31TBS, 2015 WL 1565299, *4 (M.D. Fla. April 8, 2015). After reviewing Florida law which is settled on the question, namely, that acting negligently in providing a defense is a breach of the insurance contract, and in this case although the Court did not say so it certainly appears to have been a question of law whether or not there was a breach, the Court stated aloud that “the Court does not know what Progressive hopes to accomplish by asking Gagat for his opinion of the adequacy of the defense it provided Maronda”.
More specifically, Progressive wanted to know about “the ‘existence or non existence [sic] of communications that took place about the defense and claims for which Maronda Homes is now critical of Progressive.’” The Court’s response to this reason was short and to the point: “The Court will not speculate about what this is supposed to mean.” Maronda Homes, Inc. v. Progressive Exp. Ins. Co., No. 6:14-cv-1287-Orl-31TBS, 2015 WL 1565299, *4 n.1 (M.D. Fla. April 8, 2015).
Whatever Progressive hoped to accomplish by taking Mr. Gagat’s deposition may be unknown, “but that is not a reason to preclude Progressive from taking the deposition.” The Court granted Progressive’s motion to compel Mr. Gagat’s deposition. “Progressive may depose Gagat.” Maronda Homes, Inc. v. Progressive Exp. Ins. Co., No. 6:14-cv-1287-Orl-31TBS, 2015 WL 1565299, *4 (M.D. Fla. April 8, 2015).
Maronda opposed Progressive’s motion on several grounds, one of which was that in setting Mr. Gagat for deposition, Progressive was actually trying to set an impermissible “apex deposition”. The Court in this case helpfully explained, for the benefit of those who, like me, had not heard the term before, that an apex deposition means “the deposition of a high ranking executive or principal in an organization.” Maronda Homes, Inc. v. Progressive Exp. Ins. Co., No. 6:14-cv-1287-Orl-31TBS, 2015 WL 1565299, *2 (M.D. Fla. April 8, 2015). The Court further explained how to support an “apex deposition” objection or, perhaps more accurately, how not to support it, because Maronda did not establish where Mr. Gagat fit within the corporation’s hierarchy, “and without this information, it is impossible to say whether Gagat is sufficiently senior in the company to be considered an apex witness.” Maronda Homes, Inc. v. Progressive Exp. Ins. Co., No. 6:14-cv-1287-Orl-31TBS, 2015 WL 1565299, *3 (M.D. Fla. April 8, 2015). It should be noted that not every “apex deposition” would be impermissible in all cases, because as the Court in this case pointed out, even if Maronda had established that Mr. Gagat was “apex,” under the circumstances of this peculiar case Mr. Gagat’s deposition would still be allowed. Maronda Homes, Inc. v. Progressive Exp. Ins. Co., No. 6:14-cv-1287-Orl-31TBS, 2015 WL 1565299, *3 (M.D. Fla. April 8, 2015).
There you have it. A deposition of an officer of a large corporate policyholder suing for defense expenses was allowed to proceed even though it was at best unclear what if anything the officer could possibly say about “the adequacy of the defense” it was provided by its liability insurance carrier. And an “apex deposition” objection is not enough, by itself, to stop a deposition from happening. So says the Court in this Federal case in Florida.
This story started out with a possible insurance connection. New Jersey’s reported settlement with Exxon of an environmental contamination lawsuit over two sites was addressed on Insurance Claims and Issues Blog on March 2, 2015, “NEW JERSEY, CHRIS CHRISTIE, EXXON AND ... INSURANCE?”.
The story of New Jersey’s settlement moved here because frankly the possible insurance connection has been overtaken by events. What started out as a reported $250 Million settlement began changing shape as soon as it was pulled into daylight.
First, the amount involved began shrinking. The amount Exxon would pay – in a case in which its liability was already determined and all that remained was for the Court to assess damages after another trial, this one on damages – went south, as they say, from $250 Million to $225 Million. To put that amount in perspective, New Jersey argued at the damages trial for $8.9 Billion. New Jersey supported its $8.9 Billion damages argument with the evidence including expert testimony. See Benjamin Weiser, “Top Officials in New Jersey Praise a Deal With Exxon” p. A23, col. 6 (New York Times Nat’l ed., Friday, March 6, 2015).
Governor Christie offered the explanation that Exxon had already agreed to pay for the cleanup in 1991. In 2014, New Jersey asked for $2.5 Billion or $2.6 Billion to be awarded in its suit against Exxon for damages to clean up the two sites involved in the lawsuit. (Different reporting yields different numbers. Let's use the $2.5 Billion figure for talking purposes.)
It does not seem probable that lawyers who now reportedly have an attorney’s fees claim for $45 Million could forget the previous deal in 1991, even as they appeared before the Court to argue for $2.5 Billion instead. Even if New Jersey’s lawyers in 2014 somehow overlooked an agreement in 1991 to supposedly pay for cleaning up those two same sites, that would still leave some $6.4 Billion in “loss of use” damages for lost use of the polluted lands unaccounted for, an amount which New Jersey also requested in the 2014 damages trial against Exxon.
So what does the $2.5 Billion include? So where did the $6.4 Billion go? Time will tell.
In the meantime, it has come to light that the settlement was arranged with the involvement of Governor Christie’s office. There is no reporting of which I am aware, that tells what if anything New Jersey’s $45 Million outside lawyers had to say about the deal. Once again, their absolute lack of anything to say is improbable.
It has also come to light that the settlement also includes additional Exxon sites in New Jersey that were not involved in New Jersey’s contamination lawsuit. These claims are described by New Jersey officials as “relatively minor”. See Kate Zernike and Benjamin Weiser, New York Times, supra.
In sum, New Jersey is facing a deal to give up more for less money. Lawyers charged with negotiating a settlement, indeed anyone tasked to negotiate a deal involving liability and damages, will appreciate the enormity of the circumstances confronting Governor Christie’s administration in this case: Liability was determined in your client’s favor, damages were already tried, and your client was asking for $8.9 Billion for damaged property at two locations. If you settled that case so that your client would release the defendant from liability for more damage and less money, what would you report about why you did it?
Perhaps we will get an opportunity to see what the people who arranged this deal will say about why they did it. As previously reported, this may not be a “done deal.” Reportedly, two things remain: (1) comments on the State’s settlement (comments by whom, exactly, is still unclear) and (2) approval by the Court in the case in which the contamination lawsuit is still pending before Judge Michael J. Hogan.