In its opinion filed on September 12, 2018, the United States Court of Appeals for the Third Circuit (“Federal Appellate Court”) held that the District Court had not abused its discretion in refusing to award any attorney fee to the prevailing plaintiff in an insurance bad faith case.
The Underlying Facts
Dissatisfied with defendant NYCM’s handling of his insurance claim related to a serious car accident, the plaintiff filed suit against the company in the Court of Common Pleas of Monroe County, asserting a contractual underinsured motorist (“UIM”) claim and a claim under the Bad Faith Statute, 42 Pa. Cons. Stat. § 8371. After NYCM removed the case to federal court, the parties settled the UIM claim for $25,000. The bad faith claim, meanwhile, proceeded to a week-long trial, at the conclusion of which a jury found that NYCM had acted in bad faith in its handling of the insurance claim and awarded the plaintiff $100,000 in punitive damages.
As the prevailing party under the Bad Faith Statute, the plaintiff then submitted a petition for attorney’s fees, in which he requested an award of $946,526.43 in fees and costs. The District Court denied this request in its entirety, reviewing every time entry submitted, performing a traditional lodestar analysis, and concluding that eighty-seven percent of the hours billed had to be disallowed as vague, duplicative, unnecessary, or inadequately supported by documentary evidence. In light of that substantial reduction, the District Court deemed the plaintiff’s request “outrageously excessive” and exercised its discretion to award no fee whatsoever. The plaintiff, through new counsel, appealed.
The Pennsylvania Bad Faith Statute
The Pennsylvania Bad Faith Statute provides that in an action arising under an insurance policy, if the court finds that the insurer has acted in bad faith toward the insured, the court may take all of the following actions: (1) Award interest on the amount of the claim from the date the claim was made by the insured in an amount equal to the prime rate of interest plus 3%. (2) Award punitive damages against the insurer. (3) Assess court costs and attorney fees against the insurer. 42 Pa. Cons. Stat. § 8371.
Because the statute uses the word “may,” the decision to award attorney’s fees and costs upon a finding of bad faith is wholly within the discretion of the trial court.
The Federal Appellate Court stated that although it was unusual for the district court to decide to award no attorney fee at all, in light of the excessive nature of the request after reducing the requested fee by eighty-seven percent, “we cannot say that this decision was an abuse of discretion. Review of the record and the District Court’s comprehensive opinion makes clear that denial of a fee award was entirely appropriate under the circumstances of this case. Counsel’s success at trial notwithstanding, the fee petition was severely deficient in numerous ways,” including counsel did not maintain contemporaneous time records for most of the litigation but instead recreated all of the records provided as part of the fee petition, using an electronic case management system that did not keep track of the amount of time expended on particular tasks; the responsibility of reconstructing the time records was left to a single attorney, who retrospectively estimated not only the length of time she herself had spent on each individual task, but also the amount of time others had spent on particular tasks, including colleagues who could not be consulted because they had left the firm by the time the fee petition was filed; many of the time entries submitted were so vague that there is no way to discern whether the hours billed were reasonable; some entries were, on their face, unnecessary or excessive (“Without more information, these tasks appear “purely clerical” in nature and should not be billed at a lawyer’s rate—nor for many hours at a time”); and, there are the “staggering” 562 hours that counsel billed for “Trial prep” or “Trial preparation” with no further description of the nature of the work performed (“We agree with the District Court that this is an “outrageous” number under the circumstances”).
The Federal Appellate Court noted that the district court stated that if counsel did nothing else for eight hours a day, every day, 562 hours would mean that counsel spent approximately 70 days doing nothing but preparing for trial in this matter, yet the trial consisted of only four days of substantive testimony, and involved a total of only five witnesses for both sides (the sole issue was whether defendant NYCM had acted in bad faith in its handling of the plaintiff’s UIM claim). The Federal Appellate Court stated: “we simply cannot fathom how they could have reasonably spent such an astronomical amount of time preparing for trial in this case, and we highly doubt they would have billed their own client for all of the hours claimed.”
The Federal Appellate Court continued: “All the more troubling is the fact that counsel’s (supposedly) hard work did not appear to pay off at trial. As the District Court explained, counsel had “to be repeatedly admonished for not being prepared because he was obviously unfamiliar with the Federal Rules of Evidence, the Federal Rules of Civil Procedure and the rulings of th[e] court.” App. 630 (emphasis omitted). Given counsel’s subpar performance and the vagueness and excessiveness of the time entries, the District Court did not abuse its discretion in disallowing all 562 hours.”
The Federal Appellate Court stated that the plaintiff’s counsel also neglected their burden of showing that their requested hourly rates were reasonable in light of the prevailing rates in the community for similar services by lawyers of reasonably comparable skill, experience, and reputation (the five billing attorneys did not even submit their own affidavits identifying their usual billing rates or describing their levels of experience, and only one of the five attorneys testified at the hearing on the fee petition about her background and experience). The District Court would have liked to disallow any hours billed by those four lawyers, and the Federal Appellate Court stated that it would have been within the court’s discretion to do so. But the District Court was not able to because the fee petition did not indicate which attorney performed each particular task. The District Court therefore disallowed all hours billed prior to the one testifying lawyer’s arrival at the firm, those billed for multiple attorney “roundtables,” and all trial hours billed by more than one lawyer.
The Federal Appellate Court held: “Here, the District Court provided a thorough explanation of how counsel failed to fulfill their duty to the court. This failure, coupled with the other deficiencies in the petition and counsel’s substandard performance, justified the District Court’s decision to deny the fee request in its entirety. That decision was not an abuse of discretion.”
Clemens v. New York Central Mutual Fire Insurance Company, No. 17-3150.
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