Strawn v. Farmers Insurance Co. of Oregon is a class action that challenged the insurer’s use of automated bill review systems to determine the reasonableness of medical claims submitted under the Personal Injury Protection (PIP) coverage of automobile policies. The plaintiff alleged that Farmers had promised to pay the “reasonable” cost of covered medical services, but had failed to do so. In May 2011, the Supreme Court of the State of Oregon ruled that a class could be certified in the case, without a showing that the amount Farmers paid to anyindividual member of the proposed class had been less than “reasonable”—because it held that unreasonableness could be presumed under Oregon’s PIP statute. The court further held that judgment could be awarded to the class on the plaintiff’s common law fraud claim, without a showing that any class member had relied on Farmers’s alleged misrepresentation. Reliance, the court concluded, could be inferred, because it was “inherent” in the purchase of insurance with mandatory PIP coverage. 350 Or 336, 258 P.3d 1199, adh’d to on recons, 350 Or 521, 256 P.3d 100 (Or. 2011) (An argument that the reasoning of this decision contains important errors can be found in this Jorden Burt client alert.)

After Farmers unsuccessfully sought review from the United States Supreme Court, Mr. Strawn petitioned for an award of fees and costs associated solely with the appellate proceedings: (i) the original appeal to the Oregon Supreme Court; (ii) Farmers’s unsuccessful petition for reconsideration; (iii) Farmers’s unsuccessful motion to recuse one justice and for rehearing on the basis of that recusal; (iv) Farmers’s unsuccessful petition for certiorari; and (v) the appellate fee petition itself. The plaintiff also requested a $5,000 incentive fee award for these proceedings. The dispute over plaintiff’s petition went all the way back to the Oregon Supreme Court, where it generated an unusual, 47-page opinion, affirming an additional award of approximately $380,000. Strawn v. Farmers Ins. Co., Nos. CC 9908-09080; CA A131605; SC S057520 (Control), S057629 (Or. Feb. 22, 2013).

The court identified several legal issues that its lengthy opinion would address.

Lodestar or Percentage?

The first arose from the fact that Mr. Strawn requested two kinds of attorney fee awards: (1) a “fee-shifting award,” which was available under Oregon’s insurance bad faith statute, and which would be paid by the defendants, and (2) a “common-fund” award, which was available under the equitable powers of the court, and which would be paid out of the punitive damages that had already been awarded to the class.

Since the bad faith statute applied only to the claims the class had asserted for breach of contract and breach of the implied covenant of good faith, any fee-shifting award could cover only work on those claims. Work associated with the plaintiff’s claims for common law fraud and for punitive damages could be paid for only with a “common-fund” award.

The court observed that the “lodestar” method (which calculates attorneys’ fees by determining a reasonable hourly rate and multiplying it by a reasonable number of hours) has become the prevailing approach to awarding fees in fee-shifting cases, while the “percentage method” (which awards a reasonable percentage of the total recovery) is more commonly applied in common-fund cases.

For Strawn, the Oregon Supreme Court settled on a hybrid approach: It calculated fees under a lodestar approach, then examined whether that calculation should be adjusted because it was out of proportion to the results of a percentage approach. (It was not.)

Fee-Shifting or Common Fund?

Having fixed on a method for calculating the amount of the fee award, the court next had to address how to allocate that award between Farmers (for the fee-shifting award) and the fund that had already been awarded to the class (for the common-fund award).

For fees relating to the original appeal, Strawn proposed that about 40% could be awarded against Farmers under the statute. Because Farmers did not dispute that allocation, the court adopted it.

For fees relating to Farmers’s unsuccessful post-opinion motions (for reconsideration and for rehearing based on recusal), and to the fee application itself, Strawn argued that 99% should be allocated to the fee-shifting award. The court disagreed. For one thing, the reconsideration motion focused exclusively on plaintiff’s fraud claim (and the conclusion that reliance could be “inferred”), which was not eligible for a fee-shifting award. Similarly, the petition for fees included requests for a common-fund award and for class administration fees, and those costs were not recoverable under the bad faith statute.

Because the plaintiff’s time records did not establish how counsel’s time had been allocated among the various claims, the court accepted Farmers’s proposal to allocate 10% of the amount associated with opposing Farmers’s motions and 50% of the amount spent on the fee petition to the fee-shifting claims.

Fees for Proceedings in Other Courts?

Plaintiff’s request for fees associated with Farmers’s unsuccessful petition to the U.S. Supreme Court raised a separate issue: Does the Oregon court have authority to award attorneys’ fees that the plaintiff incurred in the U.S. Supreme Court?

The answer to that question was complex. The court found that the bad faith statute would not permit an award of fees for the certiorari petition, because it authorizes awards only for actions brought “in any court in this state.” The court also found, however, that the petition related solely to plaintiff’s fraud claim, and so that no part of it could be attributed to the claims to which the statute applied.

“Common-fund” awards are made under the “common-fund doctrine,” which is an exercise of equity to prevent unjust enrichment. Consequently, the court reasoned:

The question . . . is not whether fees resulted from attorney representation in this court . . . [but] whether the other class members would be unjustly enriched by receiving the benefit of that representation without having to pay for it. We have already concluded that they would. Accordingly, we have authority to award the requested fees from the common fund.

Interest?

Plaintiff also requested “post-decision, prejudgment interest” on the awards of attorneys’ fees—interest that would have begun to accrue when the fees were granted by the intermediate appellate court (because all of the fees related to appellate proceedings).

In this connection, the court found that an appellate court’s order awarding attorneys’ fees is an obligation that does not become “due” at the time of the order, because, under the applicable Oregon statute, the order does not become effective until the appellate judgment has been issued. The court held, therefore, that it lacked authority to award interest on the fee-shifting claims. Without deciding whether it had discretion to award interest on the common-fund claims, based on its equitable authority, the court declined to exercise such discretion.

Incentive Award

The final issue was whether the court could grant a $5,000 incentive fee to the plaintiff, who had already been awarded a $20,000 fee by the trial court. The Supreme Court found that the plaintiff undertook significant risks on appeal—in particular, he risked being required to pay Farmers’s costs, which could have been more than $20,000, if some portion of the appeal had succeeded. On that basis, it reversed the Court of Appeals and awarded the additional $5,000 from the punitive damages award.