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Attorney’s Fee Award Denied By Federal Court on Basis of Being Outrageously Excessive

Plaintiff Bernie Clemens was awarded $100,000 in punitive damages under the Pennsylvania Bad Faith Statute in a federal jury trial. He then submitted a petition to the District Court judge for over $900,000 in attorney’s fees from the defendant New York Central Mutual Fire Insurance Company. The District Court denied the petition in its entirety on the basis that it was not adequately supported and that the requested amount was grossly excessive. In the published decision of Clemens v. New York Central Mutual Fire Insurance Company, 2018 U.S. App. LEXIS 25803 (3rd Cir. 2018), the United States Court of Appeals for the Third Circuit upheld the denial of attorney’s fees.

Plaintiff Clemens had been dissatisfied with the defendant insurance company’s handling of his insurance claim related to a serious car accident and filed suit against the company in state court in Pennsylvania, asserting a contractual UIM claim and a claim under Pennsylvania’s Bad Faith Statute. The case was removed to federal court and the parties settled the UIM claim for $25,000. The bad faith claim, however, proceeded to a weeklong trial, at the conclusion of which, the jury found that the insurance company had acted in bad faith and awarded Clemens $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 in fees and costs. The District Court denied the request in its entirety in a “thorough and well-reasoned 100 page opinion.” The court found that 87% of the hours billed had to be disallowed as vague, duplicative, unnecessary, or inadequately supported by documentary evidence. Hence, the District Court found that the fee request was “outrageously excessive” and exercised its discretion to award no fee whatsoever.

The Third Circuit noted that the Pennsylvania Bad Faith Statute used the word “may” with respect to the award of attorney’s fees and costs. Thus, the Court found that it was within the judge’s discretion whether or not to award attorneys fees. The Third Circuit held that the fee request must be reasonable. It would not disturb the District Court judge’s decision absent an abuse of discretion. The Court stated that “[a]lthough it was unusual, we cannot say that this decision was an abuse of discretion.”

The Third Circuit enumerated the many problems with the fee application. To start, counsel did not maintain contemporaneous time records for most of the litigation and they had to be recreated. The responsibility of reconstructing the time records was left to a single attorney, who not only had to estimate retrospectively the length of time she spent on each individual task, but also had to estimate the amount of time that her colleagues spent on task because they had left the firm by the time the fee petition was filed.  While contemporaneous records are not required, the Court noted that it was the “preferred practice.”

Further, 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. In particular, the Third Circuit noted that counsel billed a “staggering” 562 hours for “trial prep” or “trial preparation” with no further description of the nature of the work performed. The Court agreed with the District Court that this amount was an outrageous number under the circumstances. That would mean that if counsel did nothing else for eight hours a day, every day, counsel would have spent approximately 70 days doing nothing but preparing for a trial, which consisted of only four days of substantive testimony with a total of five witnesses for both sides.

And, even more troubling was the fact that the counsel’s hard work did not appear to pay off at trial. The District Court had to repeatedly admonish counsel for being unprepared because he was so obviously unfamiliar with the Rules of Evidence, Rules of Procedure and rulings of the court. Hence, the Third Circuit agreed that the District Court did not abuse its discretion in disallowing all of the 562 hours for this trial preparation.

Also, the Court pointed out that counsel neglected their burden of showing that the requested hourly rates were reasonable in light of the prevailing rate in the community or similar services by lawyers of reasonably comparable skill, experience, and reputation. Four of the five billing lawyers, including lead counsel, provided no information whatsoever on which the District Court could make a determination whether the requested hourly rate was reasonable. For all of these reasons, the District Court concluded, based upon the disallowance, as well as other reductions, that counsel was entitled to only 13% of the fees they requested. Accordingly, the District Court found that the request was “outrageously excessive” and exercised its discretion to award no fee at all.

The Third Circuit stated that while it had never had the opportunity to formally endorse such an approach, other circuits have held that district courts may exercise discretion to deny a fee request in its entirety when the requested amount is outrageously excessive under the circumstances. The rationale is that unless the court has this kind of discretion, claimants would be encouraged to make unreasonable demands, knowing that the only unfavorable consequence of such conduct would be a reduction of their fee to what they should have asked for in the first place. The Third Circuit agreed with this rationale. It stated that is the duty of the requesting party to make a good-faith effort to exclude “ hours that are excessive, redundant, or otherwise unnecessary, just as a lawyer in private practice ethically is obligated to exclude such hours from his fee submission.”

The Third Circuit found that the District Court provided a thorough explanation of how counsel failed to fulfill their duty to the court. That failure, along with the other deficiencies in the fee petition and counsel’s substandard performance, justified the District Court’s decision to deny the fee request in its entirety. The Third Circuit found that this decision was not an abuse of discretion and, thus, affirmed the order of the District Court denying the plaintiff’s fee award.

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