The Surety and Attorney Fees – Reasonable Attorney Fees
August 23, 2022
This is the second post of a multi-part post regarding attorney’s fees. In the first post we discussed the American Rule regarding recovery of attorney’s fees and its exceptions. In this post we will discuss determining and proving the reasonableness of attorney’s fees.
If attorney’s fees are on the table, so to speak, as an item of damages, whether against the surety or against a party the surety is pursuing, the question becomes what is required to prove the fees? In general, the recovery of attorney’s fees includes proving the reasonableness of those fees. Even if the attorney fee provision is in the form of a specific rate or percentage, the reasonableness proof may still be required. The determination of the “reasonableness” of an award is within the sound discretion of the trial court. This is appropriate in view of the trial court’s superior understanding of the litigation. Hensley v. Eckerhart, 461 U.S. 424, 103 S.Ct. 1933, 1941, 76 L.Ed.2d 40 (1983). An award of attorney’s fees will only be modified upon proof of an abuse of discretion. Carr v. Blazer Financial Services, Inc., 598 F.2d 1368, 1370 (5th Cir.1979).
When awarding attorney’s fees, most federal courts use the so called “lodestar” method. Heidtman v. Cnty. of El Paso, 171 F.3d 1038, 1043 (5th Cir. 1999). The lodestar is calculated by “multiplying the number of hours reasonably expended by an appropriate hourly rate in the community for such work.” Robinson v. Equifax Info. Servs., LLC, 560 F.3d 235, 243 (4th Cir. 2009) (citing Grissom v. The Mills Corp., 549 F.3d 313, 320 (4th Cir. 2008); Frazier v. Franklin Inv. Co., Inc., 468 A.2d 1338, 1341 (D.C. 1983). In considering the reasonableness of attorney’s fees most courts have adopted the Johnson factors. RedHawk Holdings Corp. v. Schreiber, No. CV 17-819, 2022 WL 65860, at *2 (E.D. La. Jan. 6, 2022). Those factors were first announced by the Fifth Circuit in the case of Johnson v. Georgia Highway Express, Inc., 488 F.2d 714, 717–19 (5th Cir.1974) and are as follows: (1) the time and labor required; (2) the novelty and difficulty of the questions; (3) the skill requisite to properly perform the legal service properly; (4) the preclusion of other employment by the attorney due to acceptance of the case; (5) the customary fee; (6) whether the fee is fixed or contingent; (7) time limitations imposed by the client or the circumstances; (8) the amount involved and the results obtained; (9) the experience, reputation, and ability of the attorneys; (10) the “undesirability” of the case; (11) the nature and length of the professional relationship with the client; and (12) awards in similar cases. Not all of the factors must be considered, and in some cases certain factors are not even applicable.
In general, a party seeking a fee award “must produce satisfactory specific evidence of the prevailing market rates in the relevant community for the type of work for which he seeks an award.” See Robinson, 560 F.3d at 244. The party seeking fees typically “has the burden of proving hours to the district court by submitting contemporaneous time records that reveal all hours for which compensation is requested and how those hours were allotted to specific tasks.” Costar, 106 F.Supp.2d at 788 (citations omitted). In documenting the hours expended, attorneys should “exercise ‘billing judgment’ by excluding time that is unproductive, excessive, duplicative, or inadequately documented when seeking fee awards.” Creecy v. Metro. Prop. & Cas. Ins. Co., 548 F. Supp. 2d 279, 286 (E.D. La. 2008) (quoting Walker v. U.S. Dept. of Hous. and Urb. Dev., 99 F.3d 761, 769 (5th Cir. 1996)). Of course, courts may eliminate hours that they deem excessive, duplicative, and too vague to permit meaningful review. Johnson v. Big Lots Stores, Inc., 639 F. Supp. 2d 696, 702 (E.D. La. 2009).
Some courts take the position that it is the province of the court to determine the reasonableness of attorney’s fees that it will award. In those circumstances all that may be required is submission of sufficiently detailed invoices. The Court in Norman v. Housing Auth., 836 F.2d 1292, 1303 (11th Cir.1988) observed that “[t]he Court … is itself an expert on the question [of reasonableness] and may consider its own knowledge and experience concerning reasonable and proper fees and may form an independent judgment either with or without the aid of witnesses as to value.” Other courts require affidavits from the attorneys’ seeking the fees. In some cases, an expert witness may be required to opine as to the reasonableness of the rate and fees incurred.
In Prestige Capital Corp. v. Target Masonry & Flooring, Inc., 2012 WL 44445 (D. Md. 2012) the court addressed the procedural aspects of proving an attorney’s fee award. The court noted that the plaintiff only offered the affidavit of its counsel in support of the reasonableness of the billing rates and the court stated “his affidavit does not provide adequate, independent evidence of the prevailing market rate for legal services in this community and stated that “[s]tanding alone, the Court finds this affidavit insufficient.” The court continued “Affidavits from other local lawyers who are familiar both with the skills of the fee applicants and more generally with the type of work in the relevant community” are the usual form of such evidence. However, the court held that Plaintiff’s failure to provide affidavits from independent counsel was not fatal. Although affidavits are the preferred evidence of the prevailing market rates for legal services, “in the absence of sufficient documentation, the court may rely on its own knowledge of the market.” CoStar, 106 F.Supp.2d at 788.
In the District of Maryland, the federal court has established Guidelines for reasonable fees which are attached as an appendix to the Local Rules. The Guidelines provide ranges of reasonable hourly rates based on counsel’s years of experience. While the Guidelines are not strictly speaking binding, generally the Maryland federal courts will presume that a rate is reasonable if it falls within or below the ranges.
What about General Agreements of Indemnity? Some GAI’s have language allowing recovery of “reasonable” attorney’s fees, which of course would require proof of the reasonableness of the fees. However, most GAI’s provide that the surety is entitled to recover all attorney’s fees incurred by reason of having issued a bond. Most also have language similar to “the voucher or other evidence of such payment shall be prima facie evidence of the propriety thereof and of the indemnitor’s liability thereof to the Company.” Will this type of provision be enforced? Some states will enforce such provisions and award attorney’s fees upon mere proof of the fees incurred. See Gundle Lining Const. Corp. v. Adams County Asphalt, Inc., 85 F.3d 201 (5th Cir. 1996)(holding surety’s prima facie evidence sufficient to support summary judgment); Fallon Elec. Co., Inc. v. Cincinnati Ins. Co., 121 F.3d 125 (3d Cir. 1997)(holding that “prima facie” provision shifts burden of proof to indemnitors to prove costs are unreasonable); Continental Cas. Co. v. American Sec. Corp., 443 F.2d 649 (D.C. Cir. 1970); Transamerica Ins. Co. v. Bloomfield, 401 F.2d 357, 362 (6th Cir. 1968); Engbrock v. Federal Ins. Co., 370 F.2d 784, 10 Fed. R. Serv. 2d 1076 (5th Cir. 1967); U. S. Fidelity & Guaranty Co. v. Napier Elec. & Const. Co., Inc., 571 S.W.2d 644, 646 (Ky. Ct. App. 1978); Hartford Acc. and Indem. Co. v. Millis Roofing and Sheet Metal, Inc., 11 Mass. App. Ct. 998, 418 N.E.2d 645, 647 (1981); Carroll v. National Surety Co., 24 F.2d 268, 270 (D.C. Cir. 1928); International Fidelity Ins. Co. v. United Constr., Inc., No. 91–2361, 1992 WL 111368, at *2–3 (E.D. Pa. May 15, 1992) (applying Pennsylvania law); Curtis T. Bedwell & Sons, Inc. v. International Fidelity Ins., No. 83–5733, 1989 WL 55388, at *3 (E.D. Pa. May 23, 1989) (same); Buckeye Union Ins. Co. v. Boggs, 109 F.R.D. 420, 423–24 (S.D. W. Va.1986) (applying West Virginia law); Commercial Union Ins. Co. v. Melikyan, 430 So.2d 1217, 1221 (La. Ct. App. 1983).
Other states, and some GAI provisions, will engraft a fraud or “good faith” requirement to recovering fees even with the prima facie provision. In those jurisdictions the surety must prove that the fees were incurred in good faith or without fraud in order to recover. See Fidelity and Deposit Company of Maryland v. Bristol Steel & Iron Works, Inc., 722 F.2d 1160, 1163 (4th Cir. 1983) citing Engbrock v. Federal Insurance Company, 370 F.2d 784, 786 (5th Cir. 1967) and Transamerica Insurance Company v. Bloomfield, 401 F.2d 357, 362-63 (6th Cir. 1968); Western Sur. Co. v. Bradford Elec. Co., Inc., 483 F. Supp. 2d 1114 (N.D. Ala. 2007); Fidelity and Deposit Co. of Maryland v. Douglas Asphalt Co., 2008 WL 5351039 (S.D. Ga. 2008), aff’d, 338 Fed. Appx. 886 (11th Cir. 2009)(“In determining whether a surety acted in good faith, where a decision is left to the discretion of a designated entity, the question is not whether it was in fact erroneous, but whether it was in bad faith, arbitrary or capricious so as to amount to an abuse of that discretion.”). One example of enforcement of the express terms of the GAI with good faith is the case of Transamerica Premier Insurance Co. v. Nelson, 110 Nev. 951, 878 P.2d 314 (1994). The Supreme Court of Nevada in Nelson held that the surety is entitled to recovery of its full attorney’s fees incurred in good faith as a consequence of having posted the bond. Id. at 317. The Court stated:. . . many district courts treat the award of attorney’s fees to a surety pursuant to a GIA as a discretionary matter to be determined based upon the court’s subjective analysis of the “reasonableness” of the fees under the circumstances. We conclude that such a standard is in contravention of the purpose of the GIA to hold the surety harmless for all expenses consequential to the issuance of the bond. Thus, we adopt a standard under which courts should consider only whether the attorney’s fees were incurred in good faith as a result of or in consequence of the issuance of a bond. When the parties contractually agree that good faith is the standard, undertaking a determination of anything other than good faith is inappropriate.
Id. at 317.In reaching its conclusion, the Nelson court made several observations. First, the court noted the distinction between suretyship and insurance, observing that the premium charged to the principal for posting the bond is calculated on the basis of complete recovery under the GIA. Id. at 316-317. Next, the court noted that a surety generally has no culpability whatsoever and the entirety of its obligations arise from its undertaking on behalf of the indemnitors and principal. Id. at 317. Finally, in assessing the proof submitted by the surety, the Nelson court enforced the prima facie evidence clause, finding that the surety satisfied its burden by submitting a detailed list of expenses for all legal work performed and that the indemnitors failed to introduce any evidence of bad faith. Id. at 318. Accordingly, the surety was awarded its full fee.
Other states will engraft a requirement that reasonableness be proven in order to recover, notwithstanding the prima facie provision. See Republic Insurance Co. v. Culbertson, 717 F. Supp. 415 (E.D. Va. 1989); United States Fidelity and Guar. Co. v. Love, 260 Ark. 374, 538 S.W.2d 558, 559 (1976); Redfern v. R.E. Dailey & Co., 146 Mich. App. 8, 379 N.W.2d 451, 456–57 (1985); Sentry Ins. Co. v. Davison Fuel & Dock Co., 60 Ohio App.2d 248, 396 N.E.2d 1071, 1074 & n. 2 (1978); Central Towers Apts., Inc. v. Martin, 61 Tenn. App. 244, 453 S.W.2d 789, 799 (1969); James Constructors, Inc. v. Salt Lake City Corp., 888 P.2d 665, 667, 668–69 (Utah. Ct. App. 1994). These states assert a variety of policy arguments to justify requiring a reasonableness standard. In Ideal Electric Security Co. v. International Fidelity Insurance Company, 129 F.3d 143 (D.C. Cir. 1997), the court held that under the law of the District of Columbia even when attorney’s fees are stipulated in an agreement, the trial court may still inquire into the reasonableness of the fees claimed under an indemnity agreement if those fees are challenged. Id. at 150. “The District of Columbia Court of Appeals has long held, and this court has acknowledged, that once a contractual entitlement to attorney’s fees has been ascertained, the determination of a reasonable fee award is for the trial court in light of the relevant circumstances.” Id. The Ideal court, stated “[i]ndeed, if good faith in this context did not include reasonableness, the indemnitee would have no incentive to police its attorneys’ activities and charges, since it could simply dump any and all charges billed onto the indemnitor. Such a result would make no sense.” Id. Finally, with respect to the prima facie evidence clause the Ideal court stated “[t]his provision is hardly conclusive with regard to the amount of a reasonable fee award, but rather simply shifts to Ideal the burden of proving that the fees claimed are excessive.” Id. at 151.
In Sork v. United Benefit Fire Insurance Co., 161 So.2d 54 (Fla. 1964), the Florida Appellate court reversed the award of attorney’s fees to the surety because there was no testimony in the record as to the reasonableness of the attorney’s fees incurred. Id. at 56. The court rejected the surety’s argument that evidence of payment was prima facie evidence of the liability of the indemnitors under the indemnity agreement. Id. The Sork court stated “[w]e must reject such a contention because we believe and hereby find that a conclusive evidence clause, such as contained in the indemnity agreement in the instant case is invalid in that such an agreement would be contrary to public policy.” Id.
As is the case in so many issues, the surety must check the jurisdiction in which the matter is pending to see how the jurisdiction treats the issue. After the first two posts, we are now ready to move on to our next blog posts on attorney’s fees, so be sure to check back. If you have questions regarding the issues discussed in this post, please do not hesitate to contact Michael A. Stover, Esq. (410-659-1321/mstover@wcslaw.com) or any member of the Surety and Fidelity Practice Group.