A $2.3 million fight between two ex-law partners over fees in a class action against Horizon Blue Cross Blue Shield of New Jersey ended Tuesday with one of them winning it all.
The U.S. Court of Appeals for the Third Circuit affirmed the fee award to Bruce Nagel in the suit, which alleged the carrier’s limited coverage of anorexia and bulimia violated ERISA. It settled for $1.18 million.
The panel found, in Drazin v. Horizon Blue Cross Blue Shield of New Jersey, 12-2642, that U.S. District Judge Faith Hochberg did not abuse her discretion in shutting out the other lawyer, David Mazie, who she found made no contribution to the successful outcome.
Mazie had filed the first such suit in New Jersey, and possibly the country, Beye v. Horizon Blue Cross Blue Shield of New Jersey, No. 06-cv-5337, in November 2006, shortly before he left the firm known as Nagel Mazie & Rice and took the case with him.
Mazie rebuffed Nagel’s suggestion that they work together on one suit against Horizon, and Nagel filed Drazin a month later.
The matters were essentially identical but were not consolidated because of the animosity between Nagel and Mazie, though the court required some cooperation to reduce duplicative discovery demands.
In the meantime, Nagel had filed a parallel class action against Aetna over its eating-disorder coverage, DeVito v. Aetna, which settled in 2008.
That agreement, which paid about $250,000 in reimbursements to 85 to 100 class members and up to $350,000 in legal fees, expanded the treatment of eating disorders for those in "fully insured" employer plans, and set up a special process to appeal coverage denials.
Mazie’s new firm, Mazie Slater Katz & Freeman, also in Roseland, did not represent any DeVito plaintiffs but wrote to the court opposing the settlement.
It also sent a lawyer to the preliminary approval hearing to say it would not settle Beye on the same terms as DeVito based on criticisms such as the failure to expand coverage for all class members.
Soon after, a settlement modeled on DeVito was negotiated in Drazin without Mazie Slater’s participation.
Mazie Slater was granted leave to apply for appointment as lead class counsel if it wanted to oppose the settlement on behalf of the Beye plaintiffs but did not do so.
Instead, it took a variety of actions.
It tried to enforce purported side agreements with Nagel Rice over fees and publicity, add the Beye plaintiffs as class representatives in Drazin, strike a settlement provision it claimed was unconstitutional and adjourn the preliminary approval process. None of the motions was granted.
The fight over what portion, if any, of the legal fees would be allocated to Mazie Slater continued long after Hochberg approved the Drazin deal on May 21, 2009.
On Dec. 28, 2011, she held that only Nagel’s firm, Nagel Rice, deserved fees, because it had developed the "template" for what she described as the valuable class benefits obtained through the settlement and engaged in months of negotiations to achieve those results, while Mazie’s firm had opposed the deal.
In rejecting Mazie Slater’s assertion that its tactics drove the defendant to the bargaining table, she said its "vehement opposition to the DeVito template" drove the defendants to negotiate with Nagel Rice instead.
"Mazie Slater does not earn a fee for ‘contributing’ to a type of settlement that it declared it would ‘never, ever’ entertain," she added. "Rhetoric has consequences."
Finding that fee-shifting under ERISA applied, she said she would appoint a special master to review Nagel Rice’s billing records and exclude hours that were "excessive, redundant, or otherwise unnecessary."
That would include time spent on hundreds of phone calls and 1,000 or so emails between counsel at the two firms, as well as time spent battling each other on such details as who would take the lead on which depositions.
Those billings were "incurred as a direct result of law firm warfare and did not confer a benefit on the Class," wrote Hochberg.
The special master, Douglas Wolfson, recommended fees of $2,196,580 based on an adjusted lodestar of $1.57 million and the 1.4 multiplier requested by Nagel. Allowed expenses of $112,505 brought the total to $2,309,086.
At the time, Wolfson was a former Superior Court judge in private practice but has since returned to the bench.
Hochberg adopted Wolfson’s recommendations on May 15, 2012.
The Third Circuit held that because it was not clearly erroneous, it had to defer to Hochberg’s conclusion that Mazie’s firm did not achieve success on the merits and thus, made no relative contribution to the settlement that would have called for allocating the fees.
Judges Kent Jordan, Thomas Vanaskie and Robert Cowen held that Mazie’s firm "neither won its case nor negotiated a settlement for its clients," "had no involvement in the settlement discussions with Horizon and filed a stipulation of dismissal in the Beye action after those discussions were successfully concluded."
The only motion it "won" in Beye was its partial defeat of Horizon’s motion to dismiss, which came six months after denial of a similar motion in DeVito, Jordan wrote.
The panel rejected as "utterly frivolous" a request that Hochberg be disqualified from presiding over any further proceedings in Drazin or any other case involving Mazie Slater.
Nagel says the decision "confirms that a firm that did nothing but try to disrupt the settlement should not share in the fees."
Mazie did not return a call.
The named plaintiff in Beye, now known as Dawn Levine, has sued Mazie and his firm for malpractice, claiming the refusal to cooperate with Nagel caused her to lose out on the $20,000 incentive payments to class representatives, and for fraud on the ground that Mazie failed to disclose his lack of class-action experience before taking the case.
Levine v. Mazie, BER-L-2736-12, is pending in Bergen County Superior Court.