Free Memorandum - District Court of Arizona - Arizona

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Steven C. Dawson, 006674 Anita Rosenthal, 006199 DAWSON & ROSENTHAL, P.C. 6586 Highway 179, Suite B-2 Sedona, Arizona 86351 [email protected] (602) 494-3800 Gregg H. Temple, 009866 GREGG H. TEMPLE, P.C. 4835 East Cactus Road, Suite 225 Scottsdale, Arizona 85254 [email protected] (602) 808-0508 Thomas L. Hudson, 014485 Danielle D. Janitch, 021838 Mark P. Hummels, 023283 OSBORN MALEDON, P.A. 2929 North Central Avenue, Suite 2100 Phoenix, Arizona 85012-2794 [email protected] [email protected] [email protected] (602) 640-9000 Attorneys for Plaintiff

UNITED STATES DISTRICT COURT DISTRICT OF ARIZONA (1) Brett D. Leavey, ) ) Plaintiff, ) ) vs. ) ) (2) UNUM/Provident Corporation, a ) foreign corporation, and (3) Provident Life ) and Accident Insurance Company, a ) foreign corporation, ) ) Defendants. ) ) )
Document 263

No. CIV-02-2281 PHX SMM

PLAINTIFF'S MEMORANDUM OF POINTS AND AUTHORITIES IN SUPPORT OF MOTION FOR ATTORNEYS' FEES AND RELATED NON-TAXABLE EXPENSES (Oral Argument Requested)

Case 2:02-cv-02281-SMM

Filed 12/22/2005

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This Memorandum is filed in support of Plaintiff's Motion for Attorneys' Fees and Related Non-Taxable Expenses. Plaintiff seeks attorneys' fees in the amount of $1,000,000 and non-taxable expenses in the amount of $92,407.64. The Statement of Consultation required by Local Rule 54(d)(1) is attached as Exhibit A. I. ELIGIBILITY

Plaintiff filed this lawsuit in Arizona Superior Court against defendants UnumProvident Corporation and Provident Life and Accident Insurance Company, alleging insurance bad faith and seeking an award of compensatory and punitive damages. Defendants removed the action to this Court based upon diversity of citizenship. After a jury trial, the court entered judgment on the jury's verdict in the amount of $4,809,028 in compensatory damages and $15,000,000 in punitive damages. Arizona substantive law applies to this diversity action. Arizona law provides that "[i]n any contested action arising out of a contract, express or implied, the court may award the successful party reasonable attorney fees." A.R.S. § 12341.01. An insurance bad faith action arises out of contract for purposes of A.R.S. § 12-341.01. Sparks v. Republic National Life Ins. Co., 132 Ariz. 529, 647 P.2d 1127 (1982). Fees can be awarded when contingency-fee agreements are involved: After obtaining a judgment, a client who has retained counsel on a contingency fee basis must surrender the agreed upon percentage of the judgment as remuneration. This is certainly an "expense of litigation" under [12-341.01] subsection (B). The award of attorney's fees mitigates the burden of the expense of litigation by offsetting the amount due the attorney. Therefore, we hold that subsection (B) allows an award of attorney's fees when a contingency fee agreement is involved. Sparks, 132 Ariz. at 545, 647 P.2d at 1143. The award may not exceed the amount paid or agreed to be paid. Associated Indemnity Corp. v. Warner, 143 Ariz. 567, 570, 694 P.2d 1181, 1184 (1985). The attached contingency fee agreement between Plaintiff and counsel provides for a fee of forty percent of the amount received by settlement or judgment. Exhibit B. The judgment in this matter, entered October 13, 2005, is for $19,809,028. The maximum that can be awarded as attorneys' fees
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under A.R.S. § 12-341.01 is therefore $7,923,712.1 The purposes of an attorneys' fee award is to "mitigate the burden of the expense of litigation to establish a just claim or a just defense." A.R.S. § 12-341.01 (A) and (B). The beneficiary of the award is the client, not the attorneys. II. ENTITLEMENT.

The Arizona Supreme Court has identified several non-exclusive items that courts are to consider in determining entitlement to and the amount of fees: a. party: The lack of merit of the defenses presented by defendants is established by the fact that the jury rejected their defenses and awarded significant compensatory and punitive damages. b. The litigation could have been avoided or settled and the successful The merits of the claim or defense presented by the unsuccessful

party's efforts were completely superfluous in achieving the result: Through discovery and investigation over nearly a decade, counsel for plaintiff amassed the skills and the evidence that convinced the jury that defendants acted in bad faith in dealing with plaintiff and that punitive damages should be awarded. In settlement discussions and private mediation, it was clear that defendants were not prepared to settle for an amount even approaching the judgment. c. hardship: The burden is on defendants' to prove that an award of fees would cause an extreme financial hardship. Plaintiff notes, however, that Exhibit 5 admitted in the trial establishes that Defendants' net worth exceeds $8 billion. Assessing fees against the unsuccessful party would cause an extreme

Post judgment interest will increase the amount of the judgment as well as the maximum attorney fee award. Case 2:02-cv-02281-SMM Document 263 3 Filed 12/22/2005 Page 3 of 11

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d. sought:

The successful party did not prevail with respect to all of the relief

Plaintiff prevailed with respect to all relief sought. Plaintiff brought this lawsuit seeking an award of future benefits, compensatory damages, and punitive damages. Defendants sought summary judgment on the claim for future benefits. This Court held that future benefits were an appropriate remedy for bad faith and repudiation of the contract, and the jury awarded $809,000,028 as the present value of future benefits. The jury also awarded $4,000,000 in compensatory damages based on the physical and emotional injury suffered by plaintiff as a result of defendants' conduct. Defendants repeatedly sought to have the Court take the issue of punitive damages away from the jury. The Court instructed the jury on punitive damages under Arizona law and the jury concluded that defendants' conduct warranted imposition of a punitive sanction in the amount of $15,000,000. The degree of the plaintiff's success in relation to the goals of the lawsuit "is a factor critical to the determination of the size of a reasonable fee[.]" Harris v. Marhoefer, 24 F.3d 16, 18-19 (9th Cir. 1994). e. The novelty of the legal question presented:

This action included three motions for summary judgment on various issues of Arizona state law and numerous motions in limine on issues of state and federal substantive and procedural law. f. jurisdiction: Defendants' handling of plaintiff's disability claim had never been adjudicated in this jurisdiction. Whether the claim or defense had previously been adjudicated in this

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g.

Whether the award would discourage other parties with tenable claims

or defenses from litigating or defending legitimate contract issues for fear of incurring liability for substantial amounts of attorneys' fees: It is unlikely that insurance companies will be discouraged from defending bad faith cases by the requested award of fees in this case. Attorneys' fees are routinely awarded against insurance companies in bad faith litigation and there is no indication that fee awards have discouraged them from defending bad faith lawsuits. III. REASONABLENESS OF REQUESTED AWARD

Local Rule 54.2(c)(3) provides several criteria to address in determining the reasonableness of the requested fee award: a. Time and Labor Required of Counsel:

Dr. Leavey retained Dawson & Rosenthal PC and Gregg H. Temple PC to represent him concerning the handling of his disability insurance claim. The majority of work put into the case was by three lawyers: Steve Dawson, Anita Rosenthal, and Gregg Temple. In addition, time was spent by Carla Parkes, a paralegal working with Mr. Dawson and Ms. Rosenthal. Finally, plaintiff engaged Thomas Hudson of the firm Osborn Maledon PA to assist with post trial briefing. The requested award of attorney's fees and non-taxable costs includes the time and expenses of all counsel for plaintiff. Accordingly, declarations are provided by attorneys Dawson, Rosenthal, Temple, and Hudson. Exhibits C, D, E, and F. Attorneys Dawson, Rosenthal, and Temple do not maintain contemporaneous time records on contingent fee cases. Instead, they have created a conservative estimate of time spent by reviewing pleadings, discovery, correspondence, and calendars. The Arizona Supreme Court has held that attorneys fees' can be awarded under A.R.S. § 12-341.01 in contingency fee cases even though contemporaneous records of hours worked were not kept. Spain v. Valley Forge Ins. Co., 152 Ariz. 189, 195, 731 P.2d 85, 90 ("[W]e are unwilling to hold that counsel fees can never be awarded to those who work on a contingent fee and do not keep time records[.]").
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Attached is a statement of work performed by attorneys Dawson, Rosenthal, and Temple on the case, together with a conservative estimate of time spent on each task. Exhibit G. Also attached is an estimate of work performed by legal assistants Barbara Leslie and Carla Parkes. Exhibit H. The estimates significantly understate the total time spent because many activities such as telephone calls, attorney conferences, and the continual review of voluminous records cannot be recaptured. The estimate also does not take into account the knowledge and documents that these attorneys have accumulated over the last decade regarding insurance companies in general and these defendants specifically, all of which benefiting the presentation of plaintiff's claim. The attorneys at Osborn Maledon have kept contemporaneous time records. Exhibit F. As the attached records establish, nearly 2000 hours have been spent thus far preparing and presenting this case to the jury and on post trial motions. b. The Novelty and Difficulty of the Questions Presented:

Insurance bad faith cases are typically considered to be complex litigation. The unique and difficult issues presented here included obtaining and reviewing discovery of voluminous internal corporate records as well as medical records and financial documents; addressing the special difficulties presented by the lengthy history of this claim; locating and preparing expert medical, economic, and bad faith witnesses; and distilling and presenting this complicated case to the jury in a comprehensible fashion. This case involved many complex and intensely contested legal and factual issues. Legal issues included those addressed by the three motions for summary judgment, the motions in limine, and the jury instructions. A nationwide research was conducted concerning the interpretation and application of the provisions of disability income policies and of the litigation history of these defendants. Counsel had to synthesize thousands of pages of defendants' internal documents in order to gain a detailed understanding so that a comprehensible story could be presented to the jury.

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c.

The Skill Requisite to Perform the Legal Service Properly

Simply stated, an attorney or firm without substantial experience in insurance bad faith litigation and trial practice would find it difficult to litigate a case such as this. As their declarations establish, Dawson, Rosenthal, and Temple all concentrate in insurance coverage and bad faith litigation and have litigated many such cases successfully in the past. Thomas Hudson and his associates at Osborn Maledon specialize in appellate work and bring a wealth of experience to the post trial motions. d. The Preclusion of Other Employment by Counsel Because of the

Acceptance of the Action Dawson & Rosenthal PC is a two attorney firm and Mr. Temple is a sole practitioner. The amount of time required to bring to trial a case such as Dr. Leavey's necessarily requires that other cases be declined. e. The Customary Fee Charged:

Customarily, insurance bad faith cases are handled on a contingency fee basis. It is a rare insured who can afford to pay counsel an hourly fee to litigate a bad faith case against an insurance company, let alone pay the significant costs involved. At the time Dr. Leavey retained attorneys Dawson, Rosenthal, and Temple to bring this action against defendants, his benefits had been terminated and he had no source of income. He could not have pursued this claim other than on a contingency fee basis. Because of the high level of skill and experience that is required to successfully litigate a bad faith case, as well as the significant degree of risk posed by such cases, contingency fees are typically between 40% and 50% of the recovery. f. Whether the Fee Contracted Between the Attorney and Client is Fixed

of Contingent. The fee contract in this case was a contingency fee of 40%, with counsel advancing the litigation expenses. This agreement is both reasonable and customary for this type of case and the amount of effort and risk born by plaintiff's attorneys.

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g.

Any Time Limitations Imposed.

There were no unusual time limitations. h. The Amount of Money, or the Value of the Rights Involved, and the

Results Obtained. Significant rights were involved in this litigation. At the time the lawsuit was filed, defendants had terminated benefits with a present value of approximately $1,000,000. The jury found that Dr. Leavey suffered significant physical and emotional damage due to the conduct of defendants. Transcending personal financial and emotional considerations, however, the manner in which an insurance company treats its policyholders is a matter of public concern and importance. The jury agreed that defendants acted reprehensibly and awarded the present value of future disability benefits, significant compensation for physical and emotional damages, and punitive damages to deter defendants and others from similar conduct. i. The Experience, Reputation and Ability of Counsel.

All of the attorneys that represent Dr. Leavey in this case are experienced, reputable and able. Attorneys Dawson, Rosenthal, and Temple all focus their practices on insurance coverage and bad faith litigation and all have many years of experience in handling insurance bad faith cases. This experience was a significant factor in obtaining a successful result. Mr. Hudson and his associates at Osborn Maledon are experienced in appeals and post trial motions. The qualifications of all attorneys are stated in their attached declarations, Exhibits C-F.. j. The "Undesirability" of the Case.

This was case was undesirable from the standpoint of the amount of work and money required to put it together and the significant risk involved if it was not successful. The defendants are very experienced at defending themselves in these types of cases and are generally known to spare no expense in doing so. The difficulty in obtaining necessary discovery and withstanding the expected vigorous motion practice are a few of the factors which make a case such as this unattractive.
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k.

The Nature and Length of the Professional Relationship.

The professional relationship between plaintiff's counsel and Dr. Leavey is limited to his dispute with defendants. l. Awards in Similar Actions.

It is difficult to generalize about awards in similar cases. Many plaintiffs do not prevail. When they do, however, multi-million dollar awards are not uncommon. With regard to attorney's fees, the District Court in the case of Greenberg v. Paul Revere, et al., CV99-0154-PHX-SRB awarded plaintiff the full contingent fee amount as applied to the compensatory damage award. Here, that same analysis would justify an award of $1,923, 611. In Ceimo v. General American, et al., CV 00-1386-PHXFJM, the court awarded $600,000 in fees based on approximately 1200 hours of attorney time. Although the court did not explain the basis for the fee award, the amount awarded was approximately $500 per hour based on the estimated hours worked. The Arizona courts have recognized that a lawyer working on a contingent fee basis may receive a large fee without that fee being unreasonable or excessive. The fee may be much larger than that which the attorney would have received if he had made no agreement and sued for the reasonable value of his services. It may be much larger than what the attorney or others in the community would have charged had they been retained and paid on a time basis. In Matter of Conservatorship of Fallers, 181 Ariz. 227, 889 P.2d 20 (Ct. App. 1994), the court approved a fee which amounted to approximately $1350 per hour. The rationale is that lawyers who work on a contingency basis face the prospect in each and every case that they will receive nothing for their efforts. IV. CONCLUSION.

Plaintiff is seeking a fee award of $1,000,000, the equivalent of approximately $500 per hour for the nearly 2000 hours spent litigating this matter to date. Given the factors discussed above, it is respectfully submitted that $1,000,000 is a reasonable fee award in this matter.
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Plaintiff also seeks an award of non-taxable costs in the amount of $92,407.64. Documentation of those costs is attached. Exhibit I and Exhibit F. Respectfully submitted December 22, 2005 //Gregg H. Temple// GREGG H. TEMPLE, P.C. 4835 East Cactus Road, Suite 225 Scottsdale, Arizona 85254 [email protected] (602) 808-0508

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I certify that on December 22, 2005, I electronically transmitted the attached document and Exhibits A-J to the Clerk's Office using the CM/ECF System for filing and transmittal of a Notice of Electronic Filing to the following CM/ECF registrants: Stephen M. Bressler Ann-Martha Andrews Scott Michael Bennett Lewis and Roca, LLP 40 North Central Avenue Phoenix, Arizona 85004-4429 [email protected] [email protected] [email protected] Attorneys for Defendants s/Gregg H. Temple

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