Louisiana Trial Court Errs in Awarding Attorney’s Fees Exceeding $2,000 Per Hour

The Supreme Court of Louisiana affirmed a trial court’s decision to the extent that it ruled it had jurisdiction to hear an employer’s claim for damages and penalties against its workers’ compensation insurer—the employer contended the insurer had breached its duty of good faith and fair dealing due to the insurer’s four-month delay in assigning counsel to defend a claim—but the high court held the trial court abused its discretion in awarding the employer, a law firm, the amount of $150,083.50 (plus penalties of double that amount) for 68.5 hours expended by one of the firm’s attorneys in defending the claim on its own, since the award amounted to $2,386.50 per hour [Cox, Cox, Filo, Camel & Wilson, LLC v. Louisiana Workers’ Comp. Corp., 2022 La. LEXIS 651 (Mar. 25, 2022)].

Background

Claimant had been employed as a law firm’s office manager for more than 45 years. By 2018, claimant’s vision became increasingly impaired, and her doctor recommended that she limit her work on a computer screen to four hours a day due to aggravation of an eye condition that was rendered symptomatic by this type of work. On October 24, 2018, claimant submitted a request for supplemental earning benefits along with proof of loss to the firm’s workers’ compensation insurer, Louisiana Workers’ Compensation Corporation (“LWCC”). On January 7, 2019, LWCC denied the claim, taking the position that the claim was not compensable under the state’s Workers’ Compensation Act. On January 15, 2019, claimant filed a disputed claim for compensation with the Office of Workers’ Compensation (“OWC”), naming Cox and LWCC as defendants.

The following day, the law firm’s managing partner, through his assistant, emailed the adjuster for LWCC informing it of the claim. The partner requested the name of the counsel who would be assigned to represent the law firm in the matter. LWCC indicated it was having difficulty retaining an attorney due to the employer-law firm’s conflict of interest with other Louisiana firms. LWCC notified the firm, however, that it had obtained an extension until February 22, 2019, to file responsive pleadings on the firm’s behalf. Ultimately, LWCC obtained an indefinite extension of time to answer discovery, but did not communicate that fact to the managing partner or to the firm.

Believing that the delay for filing an answer was approaching, the managing partner filed an answer and cross claim in the workers’ compensation matter on behalf of the law firm. In this filing, the firm did not dispute that claimant had sustained an occupational injury or disease and asserted that LWCC had breached its obligations under the policy to defend and indemnify the firm.

Firm Files Civil Action

Prior to the filing of that answer, the law firm filed a civil action against LWCC, alleging it had breached its duty of good faith and fair dealing pursuant to La. R.S. 22:1973 by failing to provide a timely and proper defense to the firm. The petition sought damages in the form of lost revenue that would have been generated by the managing partner had he not been required to defend the workers’ compensation claim himself. LWCC filed exceptions of no cause of action and lack of subject matter jurisdiction. The district court denied both exceptions.

Bench Trial

The matter then proceeded to a bench trial. The law firm offered three witnesses: the managing partner of the firm, the claimant’s attorney), and a CPA. The managing partner testified that his law practice concentrated on representing personal injury claimants, that because his work focused on this area, he did not maintain time sheets or other such records. His productivity to the firm was strictly gauged by the revenue he generates. He testified further that he had expended 68.5 hours in defending the firm in the workers’ compensation matter.

CPA Says Partner Generated Lots of Revenue

The CPA testified that he had examined the revenue generated by the managing partner for the ten years preceding the claim. The partner’s “hourly rate” would be $2,080.50 based upon his ten-year examination. The CPA further testified that the partner’s five-year rate would be $2,107.00, and his three-year rate would be $2,386.50 per hour.

Other Evidence

LWCC presented the testimony of one of an assistant vice president of claims, who testified that LWCC struggled to find an attorney willing to defend the employer-law firm.

Big Verdict

At the conclusion of the bench trial, the district court rendered judgment in favor of the firm, finding LWCC breached its obligation of good faith and fair dealing in failing to procure counsel to defend the firm in the workers’ compensation matter. Based on the evidence heard, the district court awarded damages to the firm in the amount of $150,083.50, representing the 68.5 hours worked by the partner at a rate of $2,386.50 per hour. The court further awarded penalties of $300,167.00, which was double the amount of damages. The court of appeal affirmed the judgment of the district court in its entirety.

Supreme Court’s Decision

Initially, the Supreme Court disposed of LWCC’s contention that the trial court had no jurisdiction to hear the case since it “arose out of” the Workers’ Compensation Act. The high court disagreed. The firm’s claim for penalties did not arise out of the state’s workers’ compensation laws. Rather, the duty of good faith was an outgrowth of the contractual and fiduciary relationship between the insured and the insurer, and the duty of good faith and fair dealing emanated from the contract between the parties.

Damages Were Excessive

The Supreme Court said that putting aside the difficulty of calculating the value of the managing partner’s services, it questioned whether it was a wise decision for him to forsake his ordinary practice to concentrate on the defense of the firm in the workers’ compensation matter. The Court stressed that it was well settled that if the plaintiff could readily avoid or mitigate the damage caused by defendant’s conduct and knows how to do so, the plaintiff cannot act in such a manner as to invite injury. By retaining separate counsel, the firm would have minimized any impact on its revenues, as the partner would have been free to pursue his ordinary practice. Special damages could then be determined based on the amount billed by an average workers’ compensation attorney, which would certainly be well below the $2,386.50 per hour figure calculated by the CPA.

Considering the facts and circumstances of this case, the high court concluded a reasonable fee for an attorney defending the firm in the workers’ compensation matter was $300 per hour. Accepting the district court’s finding that the defense of the workers’ compensation case would have required a total of 68.5 hours, the Court concluded an award of $20,550.00 in special damages was appropriate to compensate the firm for the loss it sustained as a result of LWCC’s failure to appoint counsel in a prompt manner. The Court further awarded penalties in the amount of $41,100.00 (representing a doubling of the damage award) as authorized by La. R.S. 22:1973.