Schlichter Excessive Fee Bid Gets Whacked

After a split decision on the merits—and a $3.1 million settlement—the plaintiffs’ attorneys asked for a fee of $5.4 million. Guess what the judge allowed?

In the case at hand—Ramos v. Banner Health—the plaintiffs (represented by Schlichter Bogard & Denton LLP) just last month lost their appeal of parts of a decision that, largely, favored the fiduciary defendants in the $2.2 billion 401(k) plan. There the 10th Circuit backed the decisions and determinations of the lower court, finding that it “operated well within its purview in calculating damages and prejudgment interest.” The appellate court also concurred that “a run-of-the-mill agreement for recordkeeping services does not constitute a prohibited transaction under ERISA”—and that “the district court properly exercised its discretion in denying injunctive relief.”

The Analysis

However, the issue of attorney’s fees in the case found itself back before William J. Martinez of the U.S. District Court for the District of Colorado, the judge in the original case. In a 22-page analysis (Ramos v. Banner Health, 2021 BL 254145, D. Colo., No. 1:15-cv-02556, 7/7/21), Judge Martinez reiterated the facts and history of the case, the results of the adjudication and apportionment of the settlement, and then proceeded to outline the considerations for review of the request, specifically that the party seeking § 1132(g)(1) fees must first demonstrate “some degree of success on the merits” that rises above a “trivial success” or “purely procedural victor[y].” He went on to explain that, once that has been established, there are five relevant considerations prescribed by the 10th Circuit for determining whether to award fees:

1. the degree of the opposing party’s culpability or bad faith;
2. the opposing party’s ability to satisfy an award of fees;
3. whether an award of fees would deter others from acting under similar circumstances;
4. whether the party requesting fees sought to benefit all participants and beneficiaries of an ERISA plan or to resolve a significant legal question regarding ERISA; and
5. the relative merits of the parties’ positions. 

These “Gordon factors” (so called because they originated in the 10th Circuit in the 1983 case of Gordon v. U.S. Steel Corp.) are nonetheless bounded in by a determination of what would constitute a reasonable amount, Martinez explained.

He then noted that in their motion, the plaintiffs requested that the Banner Defendants pay their attorneys’ fees totaling $5,286,413.60 and expenses of $108,564.98, and that the seven named class representatives receive incentive awards of $15,000 from the class recovery.

Factor Factors

Noting that the plaintiffs did obtain some success on the merits, Martinez examined the Gordon factors, concluding that while the Banner defendants were found to have breached their duty of prudence by failing to monitor Banner’s service agreement with Fidelity and improperly allowing the Plan to reimburse Banner for expenses, “such breaches were the byproduct of the Banner Defendants’ negligence, not intentional wrongdoing,” but that “…an award of attorneys’ fees and expenses may help deter the Banner Defendants from similar behavior in the future. While the Court “found in favor of Plaintiffs on their breach of duty of prudence claim, it rejected Plaintiffs’ expert testimony on damages,” and ultimately felt that it had to craft its own determination (and that, if it had not done so, there would have been no recovery), and that was a “tiny fraction” of the $85 million in damages sought. However, ultimately, “after considering and balancing each of the Gordon factors, the Court finds that some award of attorneys’ fees in Plaintiffs’ favor is appropriate.”

Billing ‘Killing’?

That said, Judge Martinez stated that, based on a series of factors (he proceeded to outline) “…the Court concludes that a substantial reduction in the amount of Plaintiffs’ requested attorneys’ fee award is appropriate.” Among those factors:

• “…the Court has carefully reviewed Plaintiffs’ billing records and finds that the requested hours do not reflect any semblance of billing judgment. Plaintiffs’ billing records are wildly excessive and include a large number of charges for redundant tasks.” Specifically called out were records that indicated that “certain attorneys billed 24 hours in a single day, or as many as 64 hours over a 3-day period.” He also took issue with billing records that “demonstrate that they consistently tasked more expensive senior lawyers with work that could have been done by less expensive junior lawyers.” 
• Despite an assertion by plaintiffs that a national (rather than regional) rates should be applied, and “notwithstanding the fact that the Banner Defendants do not challenge the reasonableness of Plaintiffs’ counsel’s hourly rates, the Court is not convinced that Plaintiffs have proven the prevailing market rate for similar services.” Martinez went on to note that “a cursory review of recent ERISA fee awards reflects that the Denver market for ERISA attorneys is substantially lower than the national hourly rate charged by Plaintiffs’ counsel.”
• And perhaps most importantly, Judge Martinez noted that “awarding Plaintiffs $5,286,413.60 in attorneys’ fees would be wholly inconsistent with their limited success at trial.” So, “having determined that a substantial discount to Plaintiffs’ attorneys’ fee award is warranted, the Court must determine what amount of attorneys’ fees reasonably compensates Plaintiffs for their litigation successes in this action.”

Decisions, Decisions

To do so Judge Martinez considered three potential measures of attorneys’ fees, explaining that “because Plaintiffs recovered just 3.68% of the $85 million in Plan losses that they sought, the Court could have limited Plaintiffs to 3.68% of their requested attorneys’ fees, for a total fee award of $194,540.02,” though he concluded that “this amount does not adequately and reasonably capture Plaintiffs’ degree of success at trial.”

He next pointed out that since the plaintiffs recovered $3,131,081.62—or 15.9%—out of the total $19,687,589 that they requested, that he could have limited Plaintiffs to 15.9% of their requested attorneys’ fees for a total fee award of $840,539.76. “Albeit closer, in the Court’s judgment this amount still does not adequately capture Plaintiffs’ relative degree of success at trial.”

Finally, “after exhaustive and detailed consideration of the totality of the circumstances, the Court has decided to award Plaintiffs 20% of their total attorneys’ fee request,” explaining that “in the Court’s view, an 80% reduction of the claimed attorneys’ fees is a reasonable reflection of the Plaintiffs’ limited success in this matter, as well as an appropriate reduction of Plaintiffs’ excessive billable hours and hourly fee rates.” And that turns out to be $1,057,282.72 in attorneys’ fees.

Expense ‘Sieve’?

Judge Martinez also had issues with the expenses submitted, calling them “grossly excessive.” He notes that “plaintiffs purportedly incurred a staggering $19,805.75 of copying costs, $71,180.71 of travel costs, and a whopping $61,912.19 in costs for, in addition to depositions, things like “filings” and “subpoena services”—and while these allegedly were discounted 40-50% of their actual expenses, Judge Martinez said that did “not reflect Plaintiffs’ limited success at trial or reasoned billing judgment”—and then opted to award Plaintiffs 20%, or $21,713, of their requested expenses.

Oh—and, both in recognition of awards already awarded two of the representatives in a related case, and acknowledging the differences in time/effort in participating in the trial, Judge Martinez reduced the $15,000 requested to $12,500 to Lorraine Ramos and Robert Moffitt, and $7,500 for the other five.