Friolo v. Frankel

WILNER, J. This case is making its third appearance in this Court, having visited the Court of Special Appeals twice and having occupied the attention of the Circuit Court for Montgomery County on three occasions, one of which involved two separate proceedings. Like Kaufman and Hart’s man who came to dinner, it is wearing out its welcome. BACKGROUND In February 1998, Joy Friolo was hired by Douglas Frankel, a physician, to handle his billings and collections, at an annual salary of $26,000. She was discharged by Frankel on April 4, 1999.

In February 2000, Friolo and her husband, Victor Salazar, filed a ten-count complaint against Frankel and his practice in the Circuit Court for Montgomery County. There were four categories of claims spread among the various counts. Friolo contended that, during her employment, she and Frankel agreed that she would receive a five percent interest in the medical practice and, as a bonus, five ³⁰⁷ percent of the monthly receivables she collected. She sought $50,000 for the interest in the practice and $9,441 for unpaid monthly bonuses.

She also complained that she was entitled to premium pay for 417 hours of overtime, which she calculated as $9,070. Those were her three claims. Her husband, who was never actually employed by Frankel, claimed an entitlement to recompense for 200 hours of work he did for Frankel. His compensatory claim was for $1,030.

Friolo’s claim for the unpaid overtime and Salazar’s claim for the 200 hours of work he allegedly performed were based, in part, on the Maryland Wage and Hour Law (Md.Code, §§ 8-401 through 3 — 4-31 of the Labor and Employment Article (LE)), which is the Maryland counterpart to the Federal Fair Labor Standards Act. Section 3-427 permits an employee who is paid less than the wage required under that Act to sue the employer to recover the difference and provides that, if a court determines that the employee is entitled to a recovery in the action, the court may allow against the employer reasonable counsel fees and costs. The plaintiffs’ claims for unpaid wages were also based, in part, on the Maryland Wage Payment and Collection Law (LE §§ 3-501 through 3-509). As we recently explained in Marshall v. Safeway, 437 Md. 542 , 88 A.3d 735 (2014), that law requires that all wages that are due to an employee be paid at certain times.

What was formerly LE § 3-507.1 but, due to a 2010 amendment is now LE § 3-507.2 also permits a direct action by an employee against an employer who fails to comply with that requirement. It provides that, in such an action, the court may award the employee an amount not exceeding three times the wage due and reasonable counsel fees if the court finds that the employer withheld the wage in violation of the act “and not as a result of a bona fide dispute.” In addition to their compensatory claims, Friolo and Salazar sought attorneys’ fees and treble damages under both statutes (even though there is no provision for enhanced damages under the Wage and Hour Law). In addition, based on associated claims of fraud, they sought punitive damages. ³⁰⁸ Early in the case, the plaintiffs offered to settle for $36,000. No offer was made by Frankel at that time.

In a Joint Pretrial Statement signed in January 2001 — nearly a year into the litigation and five months before trial — Friolo said she was seeking $6,003 for unpaid bonuses and $9,070 for unpaid overtime. The plaintiffs offered to settle the case for $65,000— the increase from $36,000 principally being due to $27,000 in accumulated attorneys’ fees. Frankel offered only $2,500. 1 There being no settlement, the case proceeded to trial before a jury, Judge Beard presiding. During the trial, Salazar dismissed all of his claims and Friolo dropped her claim for a 5 percent interest in Frankel’s medical practice and reduced her claims for unpaid bonuses and overtime.

The only claims that were submitted to the jury were Friolo’s revised claim for $6,841 in unpaid bonuses and $5,237 for unpaid overtime, and, as we pointed out in our first Opinion in this case, the dispute over those items was a narrow one. Frankel acknowledged the bonus arrangement but contended that he had paid all of the bonuses that were due, and he claimed that Friolo was not entitled to overtime because she was an administrative employee. See Friolo v. Frankel, 373 Md. 501, 507 , 819 A.2d 354, 358 (2003). 2 The jury awarded all but $300 that Friolo requested for compensatory damages — $6,841 for unpaid bonuses and $4,937 for overtime. The jury was instructed that, if it found that Frankel withheld wages from Friolo and the withholding was not a result of a bona fide dispute, it could, if it deemed appropriate, award her extra compensation up to three times the amount “that you find she is entitled to.” Upon an objection by Friolo that the instruction was limited to the ³⁰⁹ unpaid overtime pay, the court, without objection but nonetheless erroneously, modified the instruction to permit a treble damage award with respect “to both overtime and the other compensation that you feel the plaintiff is entitled to, if you rule in her favor.” Although a Special Verdict Form was used, the jury was not asked to determine whether any wages it might find were due were, or were not, withheld as the result of a bona fide dispute, and it made no such determination.

It did, however, award $0 in additional damages, both with respect to the unpaid bonuses and the unpaid overtime. Judgment was entered in favor of Friolo for the aggregate of $11,778. Frankel filed a motion for new trial, which was denied. He then paid the judgment.

Two weeks after entry of the judgment, Friolo’s attorney, Leizer Goldsmith, filed a motion for attorneys’ fees and costs. The motion asserted that the fees should be calculated in accordance with a modified lodestar approach (reasonable hours expended times reasonable hourly rate), and it offered as reasonable a total of 263 hours expended by four attorneys in the firm at hourly rates ranging from $305/hour for Goldsmith to $90/hour for associates, for a total of $61,125. Goldsmith deducted 10 percent of that amount for claims that were not successful, for a net amount of $55,012. Thirteen days later, in a supplemental motion, he raised the amount to $57,059 based on 228 hours, and three months after that, he raised it to $69,637 based on 275 hours.

Frankel responded that, because the jury did not find the lack of a bona fide dispute (and thus inferentially must have concluded that there was one), no fees were warranted under LE § 3-507.1 and that, in any event, the fees requested were unreasonable. In a hearing on the matter, the court, through Judge Beard, though suggesting that it was considering the lodestar approach, actually awarded a $4,712 fee based on that being 40 percent of the $11,778 judgment. Friolo appealed, claiming that the court erred in not using the lodestar approach. The $4,712 fee, she contended, amounted to less than 10 percent of what a lodestar approach would have warranted.

Noting that, by virtue of LE § 3-507.1, no attorneys’ fees could be award ³¹⁰ ed with respect to the claim for bonuses under the Wage Payment Act unless the non-payment was not the result of a bona fide dispute, but that the court included in its fee 40 percent of that claim, Friolo urged, at least by inference, that the court must have concluded that there was no bona fide dispute regarding the bonuses. Frankel contended that there was no actual entitlement to attorneys’ fees and that the court did not err in refusing to use a lodestar approach. There were basically two straightforward legal issues presented. We answered the two questions.

We acknowledged that there was no actual entitlement to attorneys’ fees under either statute, but noted that the court did award fees in this case and that no cross-appeal had been taken from that decision, so the exercise of that discretion was not before us. The only issue was the appropriate method of calculating the fee, and, as to that, we held that the lodestar approach, more-or-less as it had been applied in the Federal courts, was the proper method. We set out the kinds of considerations that might justify a departure from a strict hours-times-rate calculation and remanded the case for the Circuit Court to use that approach. Friolo v. Frankel, supra, 373 Md. 501 , 819 A.2d 354 .

In doing so, we observed that (1) even using a lodestar approach, the $57,000 fee sought by Goldsmith was not reasonable, id. at 512 , 819 A.2d at 361 , and (2) we were not suggesting that the $4,712 awarded by the court was unreasonable, id., at 529 , 819 A.2d at 371 . We noted further that, on remand, the court would need to consider that the jury had made no finding of a lack of bona fide dispute with respect to the non-payment of bonuses and whether the unsuccessful claims were truly related to the successful ones, id. at 530 , 819 A.2d at 371 . Because Friolo was successful in the appeal, we assessed the costs of the appeal against Frankel. See Md. Rule 8-607 (“Unless the Court orders otherwise, the prevailing party is entitled to costs”).

When the case returned to the Circuit Court, Friolo filed a third supplement to her motion for attorneys’ fees in which she renewed her request for $69,637 with respect to the first trial proceeding and sought an additional $58,172 for time ³¹¹ expended since the initial award, for a total of $127,810 (plus costs of $3,845). Frankel contended that there was no precedent, at least with respect to the two statutes, for awarding any fees for time spent pursuing an appeal by the plaintiff where the amount of the underlying judgment was not at issue and urged the court to award only a “modest” fee. In October 2003, Judge Beard awarded Friolo what the judge regarded as a “lodestar amount” of $65,348. 3 That amount was determined by multiplying 194 hours by $295 and 85 hours by $200 — the rates specified in the retainer agreement between Friolo and Goldsmith — but which the court concluded took into consideration the complexity of the litigation, the “success rate of the different parts of the litigation,” and the uniqueness of the issues. Neither party was happy with that result.

Each filed a motion to alter or amend the award, and, when those motions were denied, each appealed. Friolo urged that the award did not comply with the lodestar approach as directed by this Court. Her principal complaint was that the court had failed to award any fees for the time expended in post-trial proceedings — the successful appeal to this Court and proceedings before the Circuit Court on remand. Frankel responded that there was no abuse of discretion in denying fees for posttrial advocacy that did not result in any tangible benefit to Friolo — that the appeal and the proceedings on remand were solely for the benefit of Goldsmith’s firm.

The Court of Special Appeals agreed with Frankel that any entitlement under the two statutes to reasonable fees “does not extend to compensation for appellate and post-remand services where the plaintiffs judgment has been satisfied and the sole issue on appeal is counsel’s dissatisfaction with the trial court’s award.” Frankel v. Friolo, 170 Md.App. 441, 452 , 907 A.2d 363, 370 (2006). Friolo, it said, was not entitled to attorneys’ fees for appellate or post-judgment services unrelated to (1) protecting the underlying judgment, (2) securing ³¹² specific relief afforded by the trial court, or (3) overturning a grossly disproportionate award or outright denial of attorneys’ fees. The appellate court concluded, however, that there was “a noticeable absence of any clear explanation of the factors utilized by the court in awarding $65,348,” that it was unclear “whether the fee awarded included both trial and post-trial work and, if so, how the fees were apportioned.” Id. at 450 , 907 A.2d at 368-69 . From that, the Court of Special Appeals found that the record did not support the conclusion that the court “actually used” the lodestar approach as articulated by this Court.

It vacated the award and directed that the case be remanded for the trial court to determine whether any of the time expended for post-trial or appellate work was related to any of the three purposes for which fees could properly be awarded. We granted Friolo’s petition for certiorari to consider the correctness of the intermediate appellate court’s conclusion regarding post-trial and appellate fees. We agreed with that court’s conclusion that, in direct conflict with, and in apparent disregard of, our instructions in Friólo I, the trial court failed to provide an explanation of how the lodestar factors affected the amount of the award, and that, regrettably, the case needed to be remanded again so that the court could apply the lodestar factors, using the analysis set forth in Friólo I, “so that the parties and any reviewing appellate court can follow the reasoning and test the validity of the findings.” Friolo v. Frankel, 403 Md. 443, 454-55 , 942 A.2d 1242, 1248-19 (2008). We disagreed, however, with the three-part test formulated by the Court of Special Appeals to determine the circumstances under which fees could properly be awarded for appellate work.

We noted the flaws in that test and concluded that, when a plaintiff obtains relief under the wage statutes and, in connection therewith, obtains an award of attorneys’ fees and, on appeal, is successful in procuring an increase in those fees or in correcting an error made by the trial court, “attorneys’ fees incurred during the appeal should be considered as a part of the lodestar analysis required to be conducted on remand ...” Id. at 460 , 942 A.2d at 1252 . The proper ³¹³ standard is the degree of success on appeal. On remand, we said, the court must include in the lodestar analysis “appellate fees Friolo incurred in successfully challenging, based on the flawed methodology the Circuit Court used, the attorneys’ fee awarded in this case.” Id. at 462 , 942 A.2d at 1253 . Again, the case returned to the Circuit Court where Judge Dugan, who had replaced Judge Beard as the presiding judge, referred it to retired Judge William Rowan, as a special master.

The incessant sparring — motions, submissions, objections — went on for nine months. 4 The last submission by Friolo sought a total of $388,129 in fees and expenses. 5 Frankel urged that Friolo be awarded only $29,563 for the entire case. The parties stipulated that the hourly rates to be applied by the master were $351.25 for Goldsmith, $238.14 for two of his associates, and $208.37 for three other associates. After reviewing the submissions in light of the lodestar standards, Judge Rowan concluded: A. With respect to the claim of $77,608 for work at the initial trial level: (1) a reduction to $45,703 was appropriate because many of the hours were unnecessary and unreasonable, (2) that amount should be further reduced by 58 percent, to $19,196, because (i) there was no predicate finding that Frankel’s withholding of $6,841 in bonuses was not due to a bona fide dispute, (ii) absent such a finding there is no entitlement to attorneys’ fees under the Wage Payment Act, and, as the $6,841 constituted 58 percent of the total judgment of $11,778, there should be a propor ³¹⁴ tionate reduction in the fees claimed for the trial work; (iii) no adjustment was warranted because of the novelty or difficulty of the issues, the preclusion of other employment, time limitations imposed, the experience, reputation, and ability of Friolo’s attorneys, undesirability of the case, the nature and length of Goldsmith’s relationship with Friolo, or awards in other cases; (iv) there was nothing in the retainer agreement between Friolo and Goldsmith regarding fees awardable under the statute, (v) given that Friolo’s claim was for $56,000 and the judgment in her favor was only $11,778, her degree of success was limited; and (vi) in light of that limited success, the award should be reduced further to $16,000 for the trial work. B. With respect to the claim of $309,951 for appellate and post-trial work: (1) As to the first appeal ($54,820), 15 hours for conducting a moot court and 23 of the 63 hours spent on writing the brief were excessive, resulting in a reduction of $9,828; (2) As to the first remand ($30,931), four hours for consulting with outside counsel and 37 hours of the time spent on preparing the fee petition were unreasonable, resulting in a $14,391 reduction; (3) As to the first appeal to the Court of Special Appeals ($57,931), eight hours of moot court time and 24 of the 98 hours for legal research and brief writing were unnecessary and unreasonable, resulting in a reduction of $10,783; (4) As to the second appeal ($75,698), 50 hours claimed for preparing for oral argument and 149 hours spent on legal research were excessive, resulting in a reduction of $35,254; (5) As to the remand after the second appeal ($90,477), 55 hours for preparing a fourth motion for fees, 11 hours opposing Judge Dugan’s order that the master’s fees be assessed equally against the parties, and 83 hours for ³¹⁵ responding to an opposition by Frankel to Friolo’s fifth motion for attorneys’ fees were excessive, resulting in a reduction of $18,636.

The net effect of Judge Rowan’s analysis and conclusions was an aggregate recommended reduction in the $309,951 sought for appellate work to $211,736, less a further reduction of $2,277 for costs that Friolo had prepaid, which produced a recommended net award for fees and costs of $209,459. Judge Rowan submitted a motion for award of fees for his 50.5 hours of service as master of $15,150, to be shared equally by the parties. Once again, neither party was happy, and so both filed exceptions. That brought the matter back before Judge Dugan, who, after listening to counsel, announced his findings from the bench extemporaneously. 6 He noted at the outset of his remarks that, although great deference was to be paid to the finding of facts by a master, Judge Rowan made his findings solely on the basis of the bills submitted; he did not hear testimony and thus had no ability to make credibility determinations. 7 As we shall recount, he found Judge Rowan entirely too generous and ended up awarding Friolo only $5,000 in attorneys’ fees and $2,277 in costs.

To make matters worse, for Friolo, he ordered her to pay one-half of the $15,150 fee to Judge Rowan. The relevant findings by Judge Dugan were as follows: (1) He found the applicable hourly rates, for purposes of the initial lodestar analysis, to be those stated in the retainer agreement between Friolo and Goldsmith — $295/hour for him and $200 for his associates — rather than the rates ³¹⁶ stipulated by counsel ($351 for Goldsmith and $238 or $208 for the associates). (2) With respect to hours: (i) For pleading and preparation, Judge Rowan had allowed 29 hours; Judge Dugan allowed only three, on the ground that eight of the ten counts in the complaint were dismissed and never went to the jury; (ii) For written discovery, Judge Rowan had allowed 19 hours; Judge Dugan allowed only two; (iii) For depositions, Judge Rowan had allowed 30 hours; Judge Dugan allowed only five, disallowing preparation time and time relevant to the abandoned claims; (iv) For trial preparation, Judge Rowan had allowed 100 hours; Judge Dugan allowed only 16, observing that this was a simple case and that much of the alleged preparation time was for interoffice memos and mock trials, which were unnecessary; (v) For trial, Judge Dugan allowed the 16 hours it actually took to try the case over a two-day period; (vi) For post-trial, Judge Rowan allowed 13 hours; Judge Dugan allowed nothing, observing that he found no basis for allowing almost as much time for posttrial and for trying the case; and (vii) For preparing the fee petition, Judge Rowan allowed 51 hours; Judge Dugan allowed three, observing that, if Goldsmith had been keeping time records contemporaneously, it should not have taken more than three hours to prepare a fee petition. The end result of Judge Dugan’s allowances was a fee for trial work of $13,580.

He then determined that, as 58 percent of the $11,778 judgment was for unpaid bonuses for which, in the absence of a finding of no bona fide dispute, attorneys’ fees are not permitted, the net lodestar amount of $13,580 should be reduced proportionately, which brought the net amount to $5,704. In light of the overall limited success — the fact that the initial claims were overstated — and language in ³¹⁷ the retainer agreement, he reduced that amount further to $5,000. Turning his attention then to the appellate proceedings, Judge Dugan observed first that there was nothing in the retainer agreement regarding an appeal and expressed his belief that the real objective of the first appeal was not to establish the lodestar approach as the controlling basis for determining a proper fee but rather to get the appellate court to approve the $69,637 fee requested by Friolo, which the appeal did not achieve. Indeed, he recounted that, in the first appeal this Court had declined to regard the fee awarded by Judge Beard ($4,711) as unreasonable in amount and had indicated that the $69,637 fee requested was unreasonable, a view shared by the Court of Special Appeals in the second appeal.

He also commented that most of the research regarding the applicability of the lodestar approach had been done at the trial level in an effort to persuade Judge Beard to adopt that approach. Accordingly, he allowed nothing for the appellate work. Friolo appealed, for the third time, complaining that Judge Dugan improperly used the hourly rates in the retainer agreement rather than those stipulated as applicable by the parties, that he erred in assessing Friolo’s degree of success both at trial and on appeal, and that he erred in allowing nothing for the appellate work. The Court of Special Appeals found merit in some of those arguments.

It concluded that Judge Dugan erred (1) in not applying the stipulated hourly rate, (2) in suggesting that limits on client liability for fees in a retainer agreement make fee awards exceeding those limits unreasonable, and (3) in using the size of the underlying judgment as determinant of the time necessary to achieve that judgment. See Friolo v. Frankel, 201 Md.App. 79, 110, 116-17, 119 , 28 A.3d 752, 771, 774-75, 776 (2011). Had the intermediate appellate court stopped there and entered its judgment in accordance with those conclusions, the case would not be here (not because the parties would have acquiesced but because, by denying certiorari, we would have ³¹⁸ administered a merciful coup de grace to this litigation). What brings it here is the Court of Special Appeals’s invention and application of an unprecedented mathematical formula for determining how attorneys’ fees in this case only should be calculated — one based on the arithmetic relationship among the amount of the claim(s), settlement demands and offers, and ultimate judgment.

This analysis was in the context of determining, in part, the plaintiffs degree of success, but more in assessing among the parties shares of responsibility for bringing and prolonging the litigation. We shall comment on this analysis in the Discussion part of this Opinion. Suffice it to say here that, based on its formula, the Court of Special Appeals determined that a proper fee would be $8,356 for the trial stage of the litigation, $10,289 for appellate work in the first appeal, and $26,395 for appellate work in the second appeal (to the Court of Special Appeals and this Court), for a total of $45,041. Applying its formula to the fees awarded to the master, the Court of Special Appeals concluded that 88 percent of those fees should be assessed against Friolo.

Its ultimate judgment was for $45,041 in favor of Friolo and against Frankel, $13,332 in favor of Judge Rowan and against Friolo, and $1,818 in favor of Judge Rowan and against Frankel. Neither side was happy with the Court of Special Appeals’s decision. Friolo believes that Goldsmith is entitled to the entire $388,129 claimed in the sixth supplement to the fee request and that the Court of Special Appeals erred in punishing her for not accepting the wholly inadequate $2,500 (or $3,000) settlement offer from Frankel, in reducing fees for appellate work that produced a successful result, in reducing fees pursuant to its newly invented mathematical formula, and in requiring that she pay 88 percent of Judge Rowan’s master’s fee. Frankel complains that the intermediate appellate court erred in failing to affirm Judge Dugan’s award.

We granted their cross-petitions. Following that action, Frankel filed personal bankruptcy in the U.S. Bankruptcy Court for the