3rd Circuit: 'Grossly excessive' fee requests can just be denied

The U.S. Court of Appeals for the Third Circuit, which covers Pennsylvania, Delaware and New Jersey, has issued an important ruling on attorney fee awards. When the requested fees are "grossly" or "outrageously" excessive, judges are not required to determine a fair amount. Instead, they have the discretion to simply disallow any fee award.

The case before the appellate court involved a bad faith claim against New York Central Mutual Fire Insurance Co. in a Pennsylvania uninsured motorist case. Bad faith occurs when insurance companies attempt to renege on their policy obligations, such as by unjustly denying or delaying legitimate claims. The case was settled for $25,000, but a jury awarded the plaintiffs $100,000 in punitive damages.

Some civil statutes allow judges to force the unsuccessful party in a lawsuit to pay the reasonable attorneys' fees of the successful party. These are called "fee-shifting statutes," and this case involved one.

The plaintiffs' attorneys submitted a request for over $900,000 in fees. Extremely problematically, the firm did not maintain ongoing time records during most of the litigation. Instead, they had a single lawyer reconstruct all of the firm's time records retroactively. This reconstruction was based upon vague notes submitted by her colleagues, with descriptions like "communicate" and "other."

According to the Third Circuit, the lawyer retrospectively estimated how much time she had spent on tasks for the plaintiffs and then went on to estimate how much time her colleagues -- including some who had since left the firm -- spent on such tasks. Those estimates were likely excessive; the court found that she had requested $27,090 for the 64.5 hours she spent on the time reconstruction project.

Initially, the district court judge considered reducing the fee request by 87 percent. However, he ultimately awarded no fees to the plaintiffs' attorneys, calling the request "astonishing" and excessive.

The plaintiffs' attorneys argued that they had been litigating the case for between eight and nine years, which accounted for the large number of hours billed. It added that the plaintiffs were extremely happy with their representation and noted that the firm had achieved a $100,000 award when the defendants had offered nothing.

The Third Circuit ruled the fee denial "entirely appropriate under the circumstances of this case."

Although no legal malpractice was alleged in this case, lawyers who fail to accurate, contemporaneous time records can easily get into trouble with their clients, judges and the bar. Shoddy recordkeeping like this could easily be considered a violation of the rules of professional conduct for attorneys. And, if faulty recordkeeping changes the outcome of an otherwise winning case and adversely affects the client, it could also be considered malpractice.