A jury found that NYCM had acted in bad faith in its handling of Mr. Clemens' insurance claim and awarded him $100,000 in punitive damages.

As the prevailing party under the bad faith law, Mr. Clemens then submitted a petition for attorneys' fees, in which he requested an award of $946,526.43 in fees and costs.

The U.S. District Court for the Middle District of Pennsylvania denied the request in its entirety. In a 100 page opinion, the district court reviewed every time entry submitted, performed a traditional lodestar analysis, and concluded that 87 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 Mr. Clemens' request “outrageously excessive” and exercised its discretion to award no fee whatsoever.

Represented by new counsel, Mr. Clemens appealed to the Third Circuit.

Pennsylvania Law

The Pennsylvania bad faith law provides that:

[i]n 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.

The Third Circuit's Decision

The circuit court affirmed.

In its decision, it first observed that because the bad faith law uses the word “may,” the decision to award attorneys' fees and costs upon a finding of bad faith “is wholly within the discretion of the trial court.”

It then ruled that the district court's decision to reduce Mr. Clemens' requested fee by 87 percent and then to decide to award no fee at all in light of the “excessive nature of the request,” although unusual, was not an abuse of discretion. Indeed, the Third Circuit added, “denial of a fee award was entirely appropriate under the circumstances of this case” because, notwithstanding counsel's success at trial, the fee petition “was severely deficient in numerous ways.”

The Third Circuit pointed out that:

- Counsel did not maintain contemporaneous time records for most of the litigation but, instead, “recreate[d]” 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;

- “Astonishingly,” counsel then attempted to recover attorneys' fees in the amount of $27,090 for the 64.5 hours it supposedly took to reconstruct the time records;

- Many of the time entries submitted were “so vague” that there was “no way to discern whether the hours billed were reasonable”;

- Counsel's time records included entries billing for attorney services described as “Other,” “Communicate,” and “Communicate-other”;

- The fee petition included a number of entries for “Attorney review,” “Analysis/Strategy,” or “Review/analyze” with no additional explanation regarding the subject or necessity of the review and were not “specific enough” to allow the district court to determine if the hours claimed were unreasonable for the work performed;

- Some entries were, on their face, “unnecessary or excessive,” including, over the course of one week, and at the same time counsel were billing for trial preparation, an entry of a total of 64 hours for “Transcripts/clips”; and

- “[F]requent entries” requested attorney rates for “File maintenance,” “File management,” and “Document management,” some of which were for as long as seven hours in a single day and appeared “purely clerical” in nature.

The circuit court also noted what it characterized as “the staggering 562 hours that counsel billed for 'Trial prep' or 'Trial preparation' with no further description of the nature of the work performed” – an “outrageous” number under the circumstances given that the trial consisted of only four days of substantive testimony and involved a total of only five witnesses for both sides.

The Third Circuit then “formally endorse[d]” a rule providing district courts with the discretion to deny a fee request in its entirety when the requested amount was “outrageously excessive” under the circumstances.

When a party submitted a fee petition, the Third Circuit said, it was not the “opening bid in the quest for an award.” Rather, it concluded, a requesting party had 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 case is Clemens v. New York Central Mutual Fire Ins. Co., No. 17-3150 (3d Cir. Sep. 12, 2018). Attorneys involved include: For Appellants: James C. Haggerty, Haggerty Goldberg Schleifer & Kupersmith, Philadelphia, PA; Michael R. Mey, Mey & Sulla, Dunmore, PA; Michael J. Pisanchyn, Pisanchyn Law Firm, Scranton, PA. For Appellee: Charles E. Haddick, Jr., Dickie McCamey & Chilcote, Camp Hill, PA.

FC&S Legal Comment

Several other circuit courts of appeals have ruled that, where a fee-shifting statute provides a court discretion to award attorneys' fees, that discretion included the ability to deny a fee request altogether when, under the circumstances, the amount requested was “outrageously excessive.” Brown v. Stackler, 612 F.2d 1057, 1059 (7th Cir. 1980); see also, e.g., Environmental Defense Fund v. Reilly, 1 F.3d 1254, 1258-60, 303 U.S. App. D.C. 87 (D.C. Cir. 1993); Fair Hous. Council of Greater Wash. v. Landow, 999 F.2d 92, 97 (4th Cir. 1993); Lewis v. Kendrick, 944 F.2d 949, 956-58 (1st Cir. 1991).