A recent NJ case illustrates what can happen when lawyers file frivolous claims to appease rich clients. In this case, a billionaire hired attorneys from two different firms to sue his 85 year old former father in law in an attempt recover funds allegedly promised to his ex-wife, by her father, before she died. Although the complaint could have been filed in good faith, it could not have been pursued in good faith after certain critical facts were established with respect to when and how the alleged promise was made. Despite facts such that “no competent attorney could have missed the frivolous nature of [the case].” Plaintiff's counsel pursued the matter using bare-knuckle methods that “crossed the boundary of appropriate litigation tactics.” Although those tactics were not technically part of the basis for the award, the fact that the Court found them worth mentioning is instructive as to the risk one takes when attempting to compensate for a weak or non-existent case with tactics that multiply the costs of litigation. (At least that’s how the Court saw things. The attorneys in question, not surprisingly, insist that they did nothing wrong and have stated that they intend to appeal the ruling.)
Although the amount of the recovery was not immediately quantified, the defense attorneys estimated that it would be several million dollars. Assuming that an attorney fee recovery in that range is upheld on appeal, two obvious lessons present themselves. First, attorneys can pay dearly for pursuing legally unsupportable actions, and need to consider that risk when evaluating the demands of a client they might otherwise think they can’t afford to say no to. Second, cases that at first seem too expensive to defend may not be. If the other side’s position is sufficiently egregious, an award of attorney fees can make a legal victory an economic victory as well.
The information contained in this blog is not legal advice and should not be relied on as such. For legal advice or for answers to specific questions, please contact the blog's author.
Wednesday, July 14, 2010
Wednesday, June 16, 2010
Attorney Fees When Cases are Remanded to State Court
For numerous reasons, a defendant in state court might rather be in federal court. Federal law provides that, under the correct circumstances, a defendant can “remove” its case from state court to federal court. If the plaintiff successfully challenges the removal to federal court (because the requirements for removal were not met), the case will be “remanded” back to the state court. Such an improvident detour through the federal system creates delay and causes unnecessary expenses, including attorney fees. To discourage defendants from using removals as a delaying tactic, the law provides that, “An order remanding the case may require the payment of just costs and any actual expenses, including attorney fees, incurred as a result of the removal.” 28 U.S.C. §1447(c)(emphasis added).
The word "may" is, of course key, as it begs the question of when the court should shift the costs and expenses associated with an improvident removal to federal court. The United States Supreme Court addressed this question in Martin v. Franklin Capital Association, 546 US 132, 126 S.Ct. 704, 163 L. Ed. 2d 547 (2005) by holding that, “absent unusual circumstances, attorney’s fees should not be awarded when the removing party has an objectively reasonable basis for removal.” Id., 546 US at 136, 126 S.Ct. at 708, 163 L.Ed. 2d at 552 (emphasis added). In setting the objectively reasonable standard, the Court sought to achieve a balanced approach to dissuade unreasonable removals without deterring defendants from validly seeking removal in matters that are merely less than certain.
The Court also discussed the "absent unusual circumstances" portion of the standard, explaining that it should be applied, consistent with the standard's objective, to achieve balanced results. For example, delay by the plaintiff in challenging a removal would militate against the award of fees. On the other hand, a defendant withholding information that shows removal to be unreasonable operates as a militating factor in favor of sanctions. Id., 546 US at 141, 126 S.Ct. at 711, 163 L.Ed. 2d at 555.
Predictably, a consequence of the above standard is much litigation over the circumstances that will tip the scales one way or the other. Defendants considering removing their cases to federal court under less than ideal conditions, and plaintiffs deciding how to respond, should factor the potential for an attorney fee recovery into their considerations.
The information contained in this blog is not legal advice and should not be relied on as such. For legal advice or for answers to specific questions, please contact the blog's author.
The word "may" is, of course key, as it begs the question of when the court should shift the costs and expenses associated with an improvident removal to federal court. The United States Supreme Court addressed this question in Martin v. Franklin Capital Association, 546 US 132, 126 S.Ct. 704, 163 L. Ed. 2d 547 (2005) by holding that, “absent unusual circumstances, attorney’s fees should not be awarded when the removing party has an objectively reasonable basis for removal.” Id., 546 US at 136, 126 S.Ct. at 708, 163 L.Ed. 2d at 552 (emphasis added). In setting the objectively reasonable standard, the Court sought to achieve a balanced approach to dissuade unreasonable removals without deterring defendants from validly seeking removal in matters that are merely less than certain.
The Court also discussed the "absent unusual circumstances" portion of the standard, explaining that it should be applied, consistent with the standard's objective, to achieve balanced results. For example, delay by the plaintiff in challenging a removal would militate against the award of fees. On the other hand, a defendant withholding information that shows removal to be unreasonable operates as a militating factor in favor of sanctions. Id., 546 US at 141, 126 S.Ct. at 711, 163 L.Ed. 2d at 555.
Predictably, a consequence of the above standard is much litigation over the circumstances that will tip the scales one way or the other. Defendants considering removing their cases to federal court under less than ideal conditions, and plaintiffs deciding how to respond, should factor the potential for an attorney fee recovery into their considerations.
The information contained in this blog is not legal advice and should not be relied on as such. For legal advice or for answers to specific questions, please contact the blog's author.
Tuesday, June 1, 2010
Attorney Fee Awards Without Winning
A recent case in NJ illustrates how, depending on statutory language, it might be possible to receive an award of attorney fees where winning is merely likely, but not assured. In Penna v. Newell Funding, which is presently in discovery (the long middle part of litigation where each side gathers facts about the other) the Court recently issued an order awarding attorney fees based, not on the final resolution for the case or as a sanction against one of the parties, but based upon the plaintiff winning a preliminary injunction.
A preliminary injunction is a form of equitable relief where the court issues an order aimed at preserving the status quo until the conclusion of the litigation. For example, in a case arising out of a pending foreclosure, a preliminary injunction might suspend the foreclosure process. Typically, to win a preliminary injunction you must show that: (1) absent the injunction, you will be damaged in such a way that a monetary award later will not make you whole; (2) no harm will result from the issuance of the injunction that is greater than the harm that will be prevented by the injunction; and (3) there is a substantial likelihood that you will prevail on the merits of the case.
In Penna the plaintiff won a preliminary injunction in a case predicated on New Jersey’s Consumer Fraud Act. The Court determined that winning the injunction qualified as the sort of equitable relief that would justify awarding attorney fees under the statute. The Court was aided in its decision by the fact that the award of a preliminary injunction carried with it a determination that plaintiff was likely to prevail on the merits at the end of the case. The Court awarded all fees incurred from the beginning of the case until the preliminary injunction.
Such rulings, if upheld, will further shift the economics of litigation brought under consumer protection laws.
The information contained in this blog is not legal advice and should not be relied on as such. For legal advice or for answers to specific questions, please contact the blog's author.
A preliminary injunction is a form of equitable relief where the court issues an order aimed at preserving the status quo until the conclusion of the litigation. For example, in a case arising out of a pending foreclosure, a preliminary injunction might suspend the foreclosure process. Typically, to win a preliminary injunction you must show that: (1) absent the injunction, you will be damaged in such a way that a monetary award later will not make you whole; (2) no harm will result from the issuance of the injunction that is greater than the harm that will be prevented by the injunction; and (3) there is a substantial likelihood that you will prevail on the merits of the case.
In Penna the plaintiff won a preliminary injunction in a case predicated on New Jersey’s Consumer Fraud Act. The Court determined that winning the injunction qualified as the sort of equitable relief that would justify awarding attorney fees under the statute. The Court was aided in its decision by the fact that the award of a preliminary injunction carried with it a determination that plaintiff was likely to prevail on the merits at the end of the case. The Court awarded all fees incurred from the beginning of the case until the preliminary injunction.
Such rulings, if upheld, will further shift the economics of litigation brought under consumer protection laws.
The information contained in this blog is not legal advice and should not be relied on as such. For legal advice or for answers to specific questions, please contact the blog's author.
Monday, April 26, 2010
Defraying Document Production Costs
Sometimes the litigation costs you most need to defray are not your attorney fees. This can easily be the case when you are not an actual party to the litigation, but merely the hapless recipient of a subpoena served by one or more of the direct participates. Document subpoenas can be hugely complicated, spanning years of business records and requiring careful review for privileged and confidential information. The wrong third party subpoena, in the wrong case, could be as disruptive to your business as actually being sued.
In federal court, three avenues for potential relief from third party document subpoenas are: 1) objecting to the subpoena (Rule 45(C)(2)(B)); 2) moving to quash or modify pursuant (Rule 45(c)(3)); or 3) moving for a protective order ( Rule 26(c)). The second and third avenues often turn on claims of "undue burden" and involve similar analyses. For present purposes we will limit our discussion to motions for a protective order.
Rule 26(c)(1) provides that "[a] party or any person from whom discovery is sought may move for a protective order in the court where the action is pending …. The court may, for good cause, issue an order to protect a party or person from annoyance, embarrassment, oppression, or undue burden or expense." The party seeking the protective order has the burden of convincing the court that compliance with the subpoena will cause a clearly defined and serious injury." See, e.g., Glenmede Trust Co. v. Hutton, 56 F.3d 476, 483 (3d Cir. 1995).
Within the Third Circuit this determination is made by examining the specific circumstances and balancing any conflicts between public and the private interests. Id. While the list of factors the court might consider is not closed, it generally includes the following: “1) whether disclosure will violate any privacy interests; 2) whether the information is being sought for a legitimate purpose or for an improper purpose; 3) whether disclosure of the information will cause a party embarrassment; 4) whether confidentiality is being sought over information important to public health and safety; 5) whether the sharing of information among litigants will promote fairness and efficiency; 6) whether a party benefiting from the order of confidentiality is a public entity or official; and 7) whether the case involves issues important to the public. Id.
The court has broad discretion to fashion a protective order that it feels will balance the competing interests and produce a just result. See, Rodgers v. United States Steel Corp., 536 F.2d 1001, 1006 n. 12 (3d Cir. 1976); Pearson v. Miller, 211 F.3d 57, 73 (3d Cir. 2000).
Given the above, where a third party is faced with a subpoena that appears to have been served for what a court would deem to be a legitimate purpose, and where it cannot argue that the subpoena is seeking information that is privileged or so sensitive that it cannot be adequately guarded through a properly crafted protective order, it will probably have to comply with the subpoena. However, complying with the subpoena does not necessarily mean paying the cost of complying with the subpoena.
Although a nonparty responding to a subpoena is typically required to pay its own costs of production, Rule 45(c)(1) expressly requires the courts and parties to avoid "imposing undue burden or expense" on the nonparty. To do this, courts may require the discovering party to inspect and copy the subpoenaed information at the third party's offices, in a manner that is convenient to the third party and limits its costs. See 45 Moore's Federal Practice § 45.03. In the alternative, courts may simply shift the cost of complying with the subpoena to the discovering party.
A good example of the latter remedy is found Miller v. Allstate Fire & Cas. Ins. Co., 73 Fed. R. Serv. 3d (Callaghan) 394 (W.D. Pa. Mar. 17, 2009). Interestingly, while the Miller court ordered the discovering party to pick up “all” the third party’s costs associated with the subpoena, it excluded attorney fees from that order. Arguably the court did not want to invite the third party to use the production process as a vehicle for recovering the costs associated with the motion for a protective order, which cost would not normally be shifted absent some other grounds for recovering attorney fees.
The information contained in this blog is not legal advice and should not be relied on as such. For legal advice or for answers to specific questions, please contact the blog's author.
In federal court, three avenues for potential relief from third party document subpoenas are: 1) objecting to the subpoena (Rule 45(C)(2)(B)); 2) moving to quash or modify pursuant (Rule 45(c)(3)); or 3) moving for a protective order ( Rule 26(c)). The second and third avenues often turn on claims of "undue burden" and involve similar analyses. For present purposes we will limit our discussion to motions for a protective order.
Rule 26(c)(1) provides that "[a] party or any person from whom discovery is sought may move for a protective order in the court where the action is pending …. The court may, for good cause, issue an order to protect a party or person from annoyance, embarrassment, oppression, or undue burden or expense." The party seeking the protective order has the burden of convincing the court that compliance with the subpoena will cause a clearly defined and serious injury." See, e.g., Glenmede Trust Co. v. Hutton, 56 F.3d 476, 483 (3d Cir. 1995).
Within the Third Circuit this determination is made by examining the specific circumstances and balancing any conflicts between public and the private interests. Id. While the list of factors the court might consider is not closed, it generally includes the following: “1) whether disclosure will violate any privacy interests; 2) whether the information is being sought for a legitimate purpose or for an improper purpose; 3) whether disclosure of the information will cause a party embarrassment; 4) whether confidentiality is being sought over information important to public health and safety; 5) whether the sharing of information among litigants will promote fairness and efficiency; 6) whether a party benefiting from the order of confidentiality is a public entity or official; and 7) whether the case involves issues important to the public. Id.
The court has broad discretion to fashion a protective order that it feels will balance the competing interests and produce a just result. See, Rodgers v. United States Steel Corp., 536 F.2d 1001, 1006 n. 12 (3d Cir. 1976); Pearson v. Miller, 211 F.3d 57, 73 (3d Cir. 2000).
Given the above, where a third party is faced with a subpoena that appears to have been served for what a court would deem to be a legitimate purpose, and where it cannot argue that the subpoena is seeking information that is privileged or so sensitive that it cannot be adequately guarded through a properly crafted protective order, it will probably have to comply with the subpoena. However, complying with the subpoena does not necessarily mean paying the cost of complying with the subpoena.
Although a nonparty responding to a subpoena is typically required to pay its own costs of production, Rule 45(c)(1) expressly requires the courts and parties to avoid "imposing undue burden or expense" on the nonparty. To do this, courts may require the discovering party to inspect and copy the subpoenaed information at the third party's offices, in a manner that is convenient to the third party and limits its costs. See 45 Moore's Federal Practice § 45.03. In the alternative, courts may simply shift the cost of complying with the subpoena to the discovering party.
A good example of the latter remedy is found Miller v. Allstate Fire & Cas. Ins. Co., 73 Fed. R. Serv. 3d (Callaghan) 394 (W.D. Pa. Mar. 17, 2009). Interestingly, while the Miller court ordered the discovering party to pick up “all” the third party’s costs associated with the subpoena, it excluded attorney fees from that order. Arguably the court did not want to invite the third party to use the production process as a vehicle for recovering the costs associated with the motion for a protective order, which cost would not normally be shifted absent some other grounds for recovering attorney fees.
The information contained in this blog is not legal advice and should not be relied on as such. For legal advice or for answers to specific questions, please contact the blog's author.
Saturday, March 27, 2010
Attorney Fee Shifting Under New Jersey’s Rules
This blog entry looks at attorney fee shifting under New Jersey Court Rule 4:58. Under this rule, either party can find itself responsible for the other sides attorney fees if it improvidently rejects a settlement demand or offer.
The attorney fee shifting provisions go into effect to the advantage of the plaintiff if the judgment is at least 120% of the plaintiff's offered settlement amount. Attorney fee shifting will favor the defendant where the judgment is 80% or less of the amount the defendant offered.
The amount owed under the attorney fee shifting provision may be reduced if it would work an undue hardship on the party to which the attorney fee is shifted. Also, a defendant cannot benefit from the rule if the plaintiff’s claim is dismissed, the defendant gets a no-cause verdict, or only nominal damages are awarded.
Offers falling under this NJ rule must be made at least 20 days before trial and are deemed withdrawn after 90 days or within 10 days of trial, whichever comes first. Subsequent offers by a party are considered a withdrawal of the party’s prior offers, but a counter offer does not render the initial offer invalid. It may still be accepted unless affirmatively withdrawn.
Rule 4:58 applies only in maters that are exclusively for monetary relief. The rule does not apply to matrimonial actions.
The information contained in this blog is not legal advice and should not be relied on as such. For legal advice or for answers to specific questions, please contact the blog's author.
The attorney fee shifting provisions go into effect to the advantage of the plaintiff if the judgment is at least 120% of the plaintiff's offered settlement amount. Attorney fee shifting will favor the defendant where the judgment is 80% or less of the amount the defendant offered.
The amount owed under the attorney fee shifting provision may be reduced if it would work an undue hardship on the party to which the attorney fee is shifted. Also, a defendant cannot benefit from the rule if the plaintiff’s claim is dismissed, the defendant gets a no-cause verdict, or only nominal damages are awarded.
Offers falling under this NJ rule must be made at least 20 days before trial and are deemed withdrawn after 90 days or within 10 days of trial, whichever comes first. Subsequent offers by a party are considered a withdrawal of the party’s prior offers, but a counter offer does not render the initial offer invalid. It may still be accepted unless affirmatively withdrawn.
Rule 4:58 applies only in maters that are exclusively for monetary relief. The rule does not apply to matrimonial actions.
The information contained in this blog is not legal advice and should not be relied on as such. For legal advice or for answers to specific questions, please contact the blog's author.
Sunday, February 28, 2010
Attorney Fee Recovery and Federal Rule 68
Federal Rule of Civil Procedure 68 provides for cost shifting if: (1) the defendant serves a settlement offer on the plaintiff more than 10 days before trial; (2) the plaintiff does not accept the offer within 10 days of its service; and (3) the judgment ultimately received is less favorable to the plaintiff than the offer. In such a case, the litigation costs incurred by the defendant after the offer was made must be payed by the plaintiff. At first blush, this Rule appears to only apply to the general class of litigation costs (filing fees and the like) that pale in comparison to the expense of attorney fees. However, in certain cases, it can have a dramatic effect on the ability of the victorious plaintiff to recover otherwise available attorney fees from the defendant.
The key factor in determining the impact of Rule 68 on Attorney Fee Recoveries is the source of the authority for fee shifting in the underlying case. For example, if the authority for fee shifting is a statute that provides for the recovery of attorney fees as a part of costs, then Rule 68 can operate to cut off the shifting of fees under the fee shifting provisions of the statute for services performed in the post offer period.
The rule will operate this way even if the offer exceeds the judgment by a tiny amount, and even if the judgment was brought lower than the offer by the closest of legal questions or factual determinations. On the other hand, courts may consider the intrinsic value of certain forms of injunctive relief when deciding whether the value of the judgment exceeded the value of the offer.
Notably, even where the underlying fee shifting statute does not define attorney fees as an element of costs, the improvident rejection of a Rule 68 offer could have a deleterious effect where the statute merely provides that the court may award the plaintiff attorney fees, or gives the court broad discretion in quantifying the award. On the one hand, the court must be mindful that the fee shifting provisions of statutes are designed to encourage and enable plaintiffs to bring meritorious suits that they otherwise could not afford. At the same time, however, the court could be sympathetic to the plaintiff in a case where the defendant's post offer work resulted in a relative loss to the defendant (i.e. where the post offer work cost the defendant more than the difference between the parties' settlement positions).
The take away here is that, in any federal case involving a fee shifting statute, it is important to understand how Rule 68 can affect the plaintiff’s ability to recover attorney fees.
The information contained in this blog is not legal advice and should not be relied on as such. For legal advice or for answers to specific questions, please contact the blog's author.
The key factor in determining the impact of Rule 68 on Attorney Fee Recoveries is the source of the authority for fee shifting in the underlying case. For example, if the authority for fee shifting is a statute that provides for the recovery of attorney fees as a part of costs, then Rule 68 can operate to cut off the shifting of fees under the fee shifting provisions of the statute for services performed in the post offer period.
The rule will operate this way even if the offer exceeds the judgment by a tiny amount, and even if the judgment was brought lower than the offer by the closest of legal questions or factual determinations. On the other hand, courts may consider the intrinsic value of certain forms of injunctive relief when deciding whether the value of the judgment exceeded the value of the offer.
Notably, even where the underlying fee shifting statute does not define attorney fees as an element of costs, the improvident rejection of a Rule 68 offer could have a deleterious effect where the statute merely provides that the court may award the plaintiff attorney fees, or gives the court broad discretion in quantifying the award. On the one hand, the court must be mindful that the fee shifting provisions of statutes are designed to encourage and enable plaintiffs to bring meritorious suits that they otherwise could not afford. At the same time, however, the court could be sympathetic to the plaintiff in a case where the defendant's post offer work resulted in a relative loss to the defendant (i.e. where the post offer work cost the defendant more than the difference between the parties' settlement positions).
The take away here is that, in any federal case involving a fee shifting statute, it is important to understand how Rule 68 can affect the plaintiff’s ability to recover attorney fees.
The information contained in this blog is not legal advice and should not be relied on as such. For legal advice or for answers to specific questions, please contact the blog's author.
Monday, February 8, 2010
RICO Enterprises and Associations in Fact
This blog entry continues my discussion of the circumstances under which you may procede with a civil RICO suit. As discussed in prior entries, civil RICO provides for, among other things, the recovery of attorney fees.
Where the alleged RICO enterprise is not a legal entity, but an association-in-fact, plaintiff must show: (1) that there exists or existed an organization, whether formal or informal; (2) that the various associates of the organization function or functioned as a continuing unit; and (3) that the organization has or had an existence separate and apart from the pattern of racketeering activity. Such an enterprise need not have a chain of command. It may make its decisions on an ad hoc basis, by any number of methods, including general consensus. The requirement that the organization (i.e. the RICO enterprise) have an existence apart from the pattern of racketeering activity simply means that the alleged enterprise must: (1) be more than an association of individuals conducting the normal business functions of a corporation; and (2) have some level of existence beyond what is necessary to engage in the alleged acts of racketeering. However, it is not necessary that the enterprise have any function wholly unrelated to the racketeering activity.
Because the rules that require pleading the organization’s identity, its mode of functioning, and its existence apart from the racketeering activity appear more onerous than they are, defendants often attack the adequacy of plaintiff’s pleadings on those specific requirements. However, where a true association-in-fact exists, there is usually a basis for at least tentatively asserting enough about how it operates to get past this defense. Of course, if the plaintiff does not have sufficient facts to allege these requirements, defendant’s counsel should waste no time moving for a quick dismissal.
For authorities supporting the above discussion, see e.g., Boyle v. United States, 129 S.Ct. 2237, 2245 (2009); United States v. Turkette 452 U.S. 576, 583 (1981); United States v. Console, 13 F.3d 641, 651-651 (3rd Cir. 1993).
The information contained in this blog is not legal advice and should not be relied on as such. For legal advice or for answers to specific questions, please contact the blog's author.
Where the alleged RICO enterprise is not a legal entity, but an association-in-fact, plaintiff must show: (1) that there exists or existed an organization, whether formal or informal; (2) that the various associates of the organization function or functioned as a continuing unit; and (3) that the organization has or had an existence separate and apart from the pattern of racketeering activity. Such an enterprise need not have a chain of command. It may make its decisions on an ad hoc basis, by any number of methods, including general consensus. The requirement that the organization (i.e. the RICO enterprise) have an existence apart from the pattern of racketeering activity simply means that the alleged enterprise must: (1) be more than an association of individuals conducting the normal business functions of a corporation; and (2) have some level of existence beyond what is necessary to engage in the alleged acts of racketeering. However, it is not necessary that the enterprise have any function wholly unrelated to the racketeering activity.
Because the rules that require pleading the organization’s identity, its mode of functioning, and its existence apart from the racketeering activity appear more onerous than they are, defendants often attack the adequacy of plaintiff’s pleadings on those specific requirements. However, where a true association-in-fact exists, there is usually a basis for at least tentatively asserting enough about how it operates to get past this defense. Of course, if the plaintiff does not have sufficient facts to allege these requirements, defendant’s counsel should waste no time moving for a quick dismissal.
For authorities supporting the above discussion, see e.g., Boyle v. United States, 129 S.Ct. 2237, 2245 (2009); United States v. Turkette 452 U.S. 576, 583 (1981); United States v. Console, 13 F.3d 641, 651-651 (3rd Cir. 1993).
The information contained in this blog is not legal advice and should not be relied on as such. For legal advice or for answers to specific questions, please contact the blog's author.
Wednesday, January 27, 2010
A Closer Look at Civil RICO: the Person/Enterprise Distinction
Because civil RICO is both a powerful and complicated tool for recovering damages and attorney fees, the next several Blog Entries will be dedicated to further exploring the circumstances under which you can proceed with a civil RICO case. (For a brief introduction to civil RICO see my blog entry dated October 6, 2009.) Civil RICO claims are provided for in both state and federal statutes, which may differ. This blog entry will focus on RICO claims under the federal statute at 18 U.S.C. 1962(c).
To state a civil RICO claim, the plaintiff must allege that a “person” engaged in (1) “conduct,” (2) of an “enterprise” (3) through a “pattern”; (4) of “racketeering activity.” Camiolo v. State Farm, 334 F.3d 345 (3rd Cir. 2003). Each of the words or phrases in quotes must be understood in terms of definitions in the statute (if available) and in terms of definitions provided by the courts. The statute provides that the “person” (i.e. the defendant) can be “any individual or entity capable of holding a legal or beneficial interest in property.” 18 U.S.C. 1961(3). The term “enterprise” includes any individual, partnership, corporation, association, or other legal entity.” (18 U.S.C. §1961(4).) The enterprise “may be comprised of only defendants, or of defendants and non-defendants.” (U.S. v. Urban, 404 F.2d 754 (3rd Cir. 2005). It may be an association-in-fact, as opposed to a formal legal entity. Although there can be overlap between the defendant and the enterprise, they cannot be one in the same. Cedric Kushner Promotions v. King, 533 U.S. 158 (2001). This is part of what is referred to as the “distinctiveness requirement” in a RICO cause of action.
The above distinctiveness requirement is easily met if the RICO enterprise consists of more than one legal entity, or legal entities separate from the legal entity that is the enterprise. For example the RICO defendants can be all the partners of a RICO enterprise partnership. On the other hand, a RICO enterprise cannot consist of a RICO defendant corporation and its own employees. However the enterprise could consist of the defendant corporation and its network of independent, non-exclusive, agents. Likewise, a RICO enterprise can consist of a defendant corporation and its outside (but not in house) attorneys.
The take away from this blog entry is that the person/defendant distinction must be well understood to identify situations where civil RICO claims are appropriate. From the defendant’s perspective, it should also be understood to properly challenge RICO claims that should never have been brought.
The information contained in this blog is not legal advice and should not be relied on as such. For legal advice or for answers to specific questions, please contact the blog's author.
To state a civil RICO claim, the plaintiff must allege that a “person” engaged in (1) “conduct,” (2) of an “enterprise” (3) through a “pattern”; (4) of “racketeering activity.” Camiolo v. State Farm, 334 F.3d 345 (3rd Cir. 2003). Each of the words or phrases in quotes must be understood in terms of definitions in the statute (if available) and in terms of definitions provided by the courts. The statute provides that the “person” (i.e. the defendant) can be “any individual or entity capable of holding a legal or beneficial interest in property.” 18 U.S.C. 1961(3). The term “enterprise” includes any individual, partnership, corporation, association, or other legal entity.” (18 U.S.C. §1961(4).) The enterprise “may be comprised of only defendants, or of defendants and non-defendants.” (U.S. v. Urban, 404 F.2d 754 (3rd Cir. 2005). It may be an association-in-fact, as opposed to a formal legal entity. Although there can be overlap between the defendant and the enterprise, they cannot be one in the same. Cedric Kushner Promotions v. King, 533 U.S. 158 (2001). This is part of what is referred to as the “distinctiveness requirement” in a RICO cause of action.
The above distinctiveness requirement is easily met if the RICO enterprise consists of more than one legal entity, or legal entities separate from the legal entity that is the enterprise. For example the RICO defendants can be all the partners of a RICO enterprise partnership. On the other hand, a RICO enterprise cannot consist of a RICO defendant corporation and its own employees. However the enterprise could consist of the defendant corporation and its network of independent, non-exclusive, agents. Likewise, a RICO enterprise can consist of a defendant corporation and its outside (but not in house) attorneys.
The take away from this blog entry is that the person/defendant distinction must be well understood to identify situations where civil RICO claims are appropriate. From the defendant’s perspective, it should also be understood to properly challenge RICO claims that should never have been brought.
The information contained in this blog is not legal advice and should not be relied on as such. For legal advice or for answers to specific questions, please contact the blog's author.
Friday, January 15, 2010
Attorney Fee Recovery Under the Contractor and Subcontractor Payment Act
The Contractor and Subcontractor Payment Act (the “CSPA,” at 73 P.S.A. 501-516) applies to any construction project in Pennsylvania, excepting residential projects involving six or fewer units. It is intended to assure contractors prompt payment from owners, and subcontractors prompt payment from contractors and other subcontractors. It leaves substantial room for owners and contractors to reach their own payment arrangements, but lends additional enforcement teeth to those arrangements. When the prompt payment provisions (which allow for good faith disputes) are not met, and the matter goes to litigation, the substantially prevailing party is entitled to attorney fees.
Notwithstanding any agreement to the contrary, the substantially prevailing party in a proceeding to recover payment under this act shall be awarded a reasonable attorney fee in an amount to be determined by the court or arbitrator, together with expenses.
(73 P.S.A. 512(b), emphasis added.) As plainly set forth in the Act, the availability of this remedy cannot be contracted away.
It is, of course, possible for neither party to be “substantially prevailing.” This could happen, for example, where the plaintiff alleges that the defendant withheld $4 million in bad faith, and the court holds that only $1 million was withheld in bad faith. The plaintiff could be said to not have substantially prevailed because the majority of the disputed amount was found to have been withheld in good faith; and, the defendant could be said to not have substantially prevailed because it withheld $1 million in bad faith.
However, where the court does find that one of the parties substantially prevailed, reasonable attorney fees will be recoverable not only for the CSPA claim itself, but for any efforts reasonably expended to collect on the judgment, which in the case of a defendant’s victory could be the attorney fees required to collect attorney fees under the CSPA.
In that regard, note the “any proceeding to recover any payment” language in the Act, as contrasted with language that might read “any proceeding arising under the statute.” Although one might argue that either provision requires an award of attorney fees in the post judgment collection phase, the Pennsylvania courts have expressly held that the former language has that effect. Therefore, it pays to look for distinctions of this kind generally when evaluating attorney fee recovery provisions, and to be conscious of the distinction when writing your own provisions into contracts.
The information contained in this blog is not legal advice and should not be relied on as such. For legal advice or for answers to specific questions, please contact the blog's author.
Notwithstanding any agreement to the contrary, the substantially prevailing party in a proceeding to recover payment under this act shall be awarded a reasonable attorney fee in an amount to be determined by the court or arbitrator, together with expenses.
(73 P.S.A. 512(b), emphasis added.) As plainly set forth in the Act, the availability of this remedy cannot be contracted away.
It is, of course, possible for neither party to be “substantially prevailing.” This could happen, for example, where the plaintiff alleges that the defendant withheld $4 million in bad faith, and the court holds that only $1 million was withheld in bad faith. The plaintiff could be said to not have substantially prevailed because the majority of the disputed amount was found to have been withheld in good faith; and, the defendant could be said to not have substantially prevailed because it withheld $1 million in bad faith.
However, where the court does find that one of the parties substantially prevailed, reasonable attorney fees will be recoverable not only for the CSPA claim itself, but for any efforts reasonably expended to collect on the judgment, which in the case of a defendant’s victory could be the attorney fees required to collect attorney fees under the CSPA.
In that regard, note the “any proceeding to recover any payment” language in the Act, as contrasted with language that might read “any proceeding arising under the statute.” Although one might argue that either provision requires an award of attorney fees in the post judgment collection phase, the Pennsylvania courts have expressly held that the former language has that effect. Therefore, it pays to look for distinctions of this kind generally when evaluating attorney fee recovery provisions, and to be conscious of the distinction when writing your own provisions into contracts.
The information contained in this blog is not legal advice and should not be relied on as such. For legal advice or for answers to specific questions, please contact the blog's author.
Friday, January 8, 2010
Attorney Fee Recovery and the Federal Consumer Credit Transaction Laws
The federal consumer credit protection code, at 15 U.S.C. 1640(a)(3), provides for attorney fees as part of the recoverable amount for any violation of Parts B, D, or E of Subsection I of the code. (These code sections are parts of what is referred to as the Truth in Lending Act.) Part B deals with disclosures in consumer credit transactions and runs from 1631 to 1651. Part D deals with credit billing and runs from 1666 to 1666j. Part E deals with Consumer Leases and runs from 1677 to 1677f.
Although granting attorney fee to a prevailing plaintiff is mandatory, the court has discretion as to the amount of fees awarded. That said, courts have acknowledged that the purpose for awarding attorney fees is to make the plaintiff whole and encourage private enforcement actions. Attorney fees are quantified based on a reasonable hourly rate and a reasonable number of hours for work necessary to plaintiff’s representation. Plaintiff’s actual obligation to pay the fee is not a factor. Since a Plaintiff might be found to have prevailed on its action even where a cases settles, defendants should make sure settlements specifically address the attorney fee issue.
Things that can put a business at risk under the above laws (and this is a very abbreviated list) include:
(1) Failing to adhere to the ways in which certain kinds of disclosures need to be labeled and formatted (15 U.S.C 1632).
(2) Failing to properly disclose the consumer’s right to rescind a consumer credit transaction within three days of its formation (15 U.S.C. 1635).
(3) Violating the disclosure requirements associated with an open ended consumer credit plan (including with respect to solicitations, opening accounts, renewing accounts, changing terms/rates, and furnishing statements, (15 U.S.C. 1637), with additional rules if the plan is secured by the consumer’s principal dwelling (15 U.S.C. 1637(a)).
(4) Violating the disclosure requirements associated with a non-open ended consumer credit transaction (15 U.S.C. 1638), with other specific disclosure requirements for certain mortgages (15 U.S.C. 1639).
(5) Violating the disclosure requirements associated with reverse mortgages (15 U.S.C. 1648).
(6) Violating the rules governing the handling of alleged billing errors. (15 U.S.C. 1066).
(7) Violating the rules governing the return of credit balances (15 U.S.C. 1066(d)).
(8) Violating the prohibition against credit card tie in services (15 U.S.C. 1666(g)).
(9) Violating the prohibition against offsets to pay credit card debt (15 U.S.C. 1666(h)).
(10) Failing to adhere to rules governing rate increases and amortization for credit card accounts (15 U.S.C. 1666(i)).
(11) Violating the rules governing disclosures in a consumer lease (15 U.S.C. 1667(a)).
(12) Violating the rules governing consumer liability at the termination of a lease (15 U.S.C. 1667(b)).
(13) Violating the rules governing disclosures in advertisements for consumer leases (15 U.S.C. 1677(c)).
Violations of the consumer credit protection code carry statutory penalties in addition to actual damages. Such penalties, including liability for the plaintiff’s attorney fees, can be triggered by unintentional violations even where the plaintiff has not incurred any actual damage. Moreover, violations may be the product of faulty procedures applied systematically across many transactions, making great fodder for class actions—especially if the class does not have to dilute their recovery to pay attorney fees.
The information contained in this blog is not legal advice and should not be relied on as such. For legal advice or for answers to specific questions, please contact the blog's author.
Although granting attorney fee to a prevailing plaintiff is mandatory, the court has discretion as to the amount of fees awarded. That said, courts have acknowledged that the purpose for awarding attorney fees is to make the plaintiff whole and encourage private enforcement actions. Attorney fees are quantified based on a reasonable hourly rate and a reasonable number of hours for work necessary to plaintiff’s representation. Plaintiff’s actual obligation to pay the fee is not a factor. Since a Plaintiff might be found to have prevailed on its action even where a cases settles, defendants should make sure settlements specifically address the attorney fee issue.
Things that can put a business at risk under the above laws (and this is a very abbreviated list) include:
(1) Failing to adhere to the ways in which certain kinds of disclosures need to be labeled and formatted (15 U.S.C 1632).
(2) Failing to properly disclose the consumer’s right to rescind a consumer credit transaction within three days of its formation (15 U.S.C. 1635).
(3) Violating the disclosure requirements associated with an open ended consumer credit plan (including with respect to solicitations, opening accounts, renewing accounts, changing terms/rates, and furnishing statements, (15 U.S.C. 1637), with additional rules if the plan is secured by the consumer’s principal dwelling (15 U.S.C. 1637(a)).
(4) Violating the disclosure requirements associated with a non-open ended consumer credit transaction (15 U.S.C. 1638), with other specific disclosure requirements for certain mortgages (15 U.S.C. 1639).
(5) Violating the disclosure requirements associated with reverse mortgages (15 U.S.C. 1648).
(6) Violating the rules governing the handling of alleged billing errors. (15 U.S.C. 1066).
(7) Violating the rules governing the return of credit balances (15 U.S.C. 1066(d)).
(8) Violating the prohibition against credit card tie in services (15 U.S.C. 1666(g)).
(9) Violating the prohibition against offsets to pay credit card debt (15 U.S.C. 1666(h)).
(10) Failing to adhere to rules governing rate increases and amortization for credit card accounts (15 U.S.C. 1666(i)).
(11) Violating the rules governing disclosures in a consumer lease (15 U.S.C. 1667(a)).
(12) Violating the rules governing consumer liability at the termination of a lease (15 U.S.C. 1667(b)).
(13) Violating the rules governing disclosures in advertisements for consumer leases (15 U.S.C. 1677(c)).
Violations of the consumer credit protection code carry statutory penalties in addition to actual damages. Such penalties, including liability for the plaintiff’s attorney fees, can be triggered by unintentional violations even where the plaintiff has not incurred any actual damage. Moreover, violations may be the product of faulty procedures applied systematically across many transactions, making great fodder for class actions—especially if the class does not have to dilute their recovery to pay attorney fees.
The information contained in this blog is not legal advice and should not be relied on as such. For legal advice or for answers to specific questions, please contact the blog's author.
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