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Category: Fee Jurisprudence

Feds Urge DC Circuit to Deny Novel Fee Request in IP Case

June 12, 2020

A recent Law 360 story by Britain Eakin, “Gov’t. Urges Fed. Circ. To Deny Novel Fee Bid in IP Appeal” reports that after failing to fend off a $4.4 million fee award on top of a $200,000 judgment for infringing a metal treatment technology patent, the government has told the Federal Circuit it has no authority to grant an inventor's untested bid seeking supplemental fees for defending the fee award.

In a response filed to a May 29 request from Hitkansut LLC and Acceledyne Technologies Ltd. LLC for appellate fees — a matter the Federal Circuit hasn't addressed before under Section 1498 of the Patent Act — the government argued that only the U.S. Court of Federal Claims can grant fee requests under that provision of the law.  "There is no indication in the statute or its legislative history that Congress intended to include post-judgment attorneys' fees within the ambit of those recoverable.  By including the fees in the underlying compensation award, the statute is open to only one interpretation: that the ability to award ... attorneys' fees ends with the final judgment of the Court of Federal Claims," the response said.

The companies, owned by late inventor Donna Walker, who passed away in 2018, asked the appeals court for supplemental attorney fees after a three-judge panel on May 1 affirmed the U.S. Court of Federal Claims' March 2019 grant of fees.  The lower court found in 2017 that government researchers at the Oak Ridge National Laboratory directly took Hitkansut's patent-pending technology, which can be used to relax stressed metal in large metal structures like airplanes, without giving Walker any credit, funding or contracts.

Hitkansut and Acceledyne were able to recoup fees at the claims court under a provision of the Patent Act that allows independent inventors, nonprofits and small businesses to recover fees when the government infringes, provided they can show the position of the United States was not "substantially justified."  The Federal Circuit said in its May 1 opinion that the government's litigation position was not substantially justified because its arguments were contrary to the evidence in the case and the testimony of government employees, and that its invalidity argument was "contradicted by its own expert witness."  The court, however, instructed the parties to bear their own costs.

But Hitkansut and Acceledyne contend that the court has the authority to order the government to pay additional fees under Section 1498, which they argued is not limited to the claims court action and so entitles them to recoup all of their costs, including those associated with defending their initial fee bid.  And although the appeals court hasn't addressed whether fees for defending an initial fee bid can be recouped under Section 1498 before, Hitkansut and Acceledyne argued that the court has done so in Wagner v. Shinseki under an analogous law — the Equal Access to Justice Act.

The court in Wagner said that because he partially prevailed in defending against the government's challenge to his initial bid for fees, "he was entitled to supplemental fees."  The Wagner court reasoned that a prevailing party can recoup fees not just for underlying litigation but also for defending an initial EAJA fee request.  Hitkansut and Acceledyne urged the court to apply the same reasoning it did in Wagner to this case, but the government contends its reliance on Wagner is "misplaced" because it says the EAJA is "fundamentally different" from Section 1498, which it said doesn't give the Federal Circuit jurisdiction over supplemental fee requests.

Congress enacted the Section 1498 fee provision because it believed the EAJA was unavailable for such claims, the government said.  "Had it wanted to do so, Congress had a clear model in EAJA to insure recovery of appellate fees and costs.  But Congress selected a different path," the government said.

Federal Circuit Reverses Fee Award in Sippy Cup IP Case

June 10, 2020

A recent Law 360 story by Tiffany Hu, “Fed. Circ. Reverses Atty Fee Award in Sippy Cup IP Case” reports that the Federal Circuit ruled that a failed patent lawsuit over spill-proof sippy cups is not exceptional enough to merit attorney fees, finding in a precedential opinion that a lower court "abused its discretion" in awarding the fees without adjudicating the issues.  In a 16-page opinion, a three-judge panel overturned a California federal judge's decision that granted Luv N' Care Ltd.'s bid for $1 million in a patent dispute against Munchkin Inc.  The lower court had deemed the case exceptional because Munchkin concealed relevant prior art during litigation, and its amended trademark claims were so weak they were abandoned.

Following a 40-minute hearing in February, where attorneys for both companies told the Federal Circuit that the lower court didn't make factual determinations on either issue, the panel agreed the exceptionality finding was underdeveloped.  "None of these issues was fully adjudicated before the court on the merits, and given the limited arguments [Luv N' Care and another defendant] made in support of [their] fee motion, we hold that the district court abused its discretion in granting the motion and we reverse the exceptional-case determination," U.S. Circuit Judge Raymond T. Chen wrote for the panel.

The panel said the district court failed to explain why Munchkin's arguments concerning the validity of its patent were unreasonable, and was also "led astray" by Luv N' Care's claim that Munchkin improperly maintained the lawsuit after the Patent Trial and Appeal Board launched an inter partes review of the patent and found the patent invalid.  "That Munchkin's patent was ultimately held unpatentable does not alone translate to finding its defense of the patent unreasonable," Judge Chen wrote.

Munchkin sued Luv N' Care and Admar International Inc. for trademark infringement and unfair competition in 2013.  Munchkin moved to amend the trademark claim the following year, deciding to assert a different trademark in the case, and then added a patent infringement claim to the suit in 2015.  Luv N' Care later challenged the validity of Munchkin's patent at the PTAB, which invalidated all of the challenged claims.  After the board invalidated the patent, the district court ruled in favor of Luv N' Care and deemed it the prevailing party.  The district court tacked on the cost of the PTAB proceedings to the fee award, as well as Munchkin's appeal of the PTAB decision that was affirmed by the Federal Circuit in 2017.

Article: How to Avoid Attorney Fees Disputes in California

May 25, 2020

A recent Daily Journal article by Heather L. Rosing and David M. Majchrzak, “The Evolution of Fee Disputes: How To Protect Yourself in a New Day & Age” reports on avoiding attorney fee disputes in California.  This article was posted with permission.  The article reads:

While attorneys and clients have always disputed over fees, the number and severity of clashes appear to have risen in recent years, with notable consequences.  We are a service industry, and what we are selling is our skill and our time, with only so many hours in the day.  If an attorney is not paid, especially if that person is in a small firm or in solo practice, the situation can have a significant impact on the ability to continue operations and meet expenses.  It is therefore critical for every practitioner to carefully examine ways of avoiding these disputes, which can also sometimes lead to counterclaims for legal malpractice.

The #1 best way for an attorney to achieve protection is to pay close attention in the case intake process.  Many attorneys embroiled in fee disputes have bemoaned accepting the client in the first place.  “Why didn’t I see the red flags?  If I did anything wrong, it was accepting this client despite my gut feeling that it was a bad idea!”

When considering accepting a new client, the attorney should ask why the client needs legal services and what the goal is.  Understanding what your client hopes to get out of the representation will allow you to assess what it will cost to provide the services.  In turn, this allows you to formulate a rough budget, and discuss with the potential client whether that person has ability to fund the representation.  A large number of fee disputes occur simply because the client is surprised by the cost of legal services and is not financially prepared for the situation.

Another critical inquiry is whether the client has had other attorneys assist with the same matter.  Who came before you?  Were they terminated?  Does the client owe them money?  Maybe there were several attorneys before you.  What does this mean?  Is it a red flag?  If the potential client’s history of representation makes you uncomfortable, this may not be the right client for you.

Once you have decided to accept the representation, it is time to fashion the fee agreement, which requires a careful examination of Business and Professions Code Section 6147 for contingency fee matters and Business and Professions Code Section 6148 for hourly matters. Among other requirements, these statutes mandate that fee agreements must be signed by both the attorney and the client.  The client must be provided with a copy.  Critically, the failure to ensure that your fee agreement conforms to the statutory requirements of the Business and Professions Code could give the client having the option of voiding your fee agreement, leaving you with a quantum meruit claim, which is less preferable than a fee claim based on a contract.

But complying with the Business and Professions Code is not enough.  The agreement should clearly state the scope of the representation, and, in certain circumstances, discuss what is not included.  If neither you nor the client are clear on exactly what you are doing for the client, a fee dispute may ensue.  The 1993 case of Nichols v. Keller, 15 Cal. App. 4th 1672, further describes the potential malpractice-related consequences of failing to clarify the scope of engagement and make referrals on issues related to your representation.

For hourly engagements, it is also important to determine whether an advance retainer is necessary and whether the client has the ability to make that payment.  If, for example, you are going to represent someone in a business litigation matter, and you request a $10,000 retainer, and they balk, this is a good indicator that they will not be able to sustain your fees.  Prudent practitioners often times require that the retainer be regularly replenished and that the client provide a special pretrial retainer in an amount necessary to try the case 60-90 days before trial.

While a properly drafted contingency fee agreement provides the attorney with a lien on the recovery, hourly arrangements do not automatically include a lien.  If an hourly attorney is interested in securing a lien through the initial fee agreement, Rule of Professional Conduct 1.8.1 (Business Transactions with a Client and Pecuniary Interests Averse to the Client) and the 2004 case of Fletcher v. Davis, 33 Cal. 4th 61 should be studied.  It is possible to obtain a valid charging lien in an hourly case with the proper documentation, and it is oftentimes prudent to get one if there is an expected recovery from a third party.

Another consideration is whether your arrangement is for a flat fee.  Rule of Professional Conduct 1.5 not only discusses the concept of an unconscionable or illegal fee, but also, in subsection (e), sets forth the circumstances in which a flat fee is allowable.  This must be read in conjunction with Rule of Professional Conduct 1.15(b), which describes the special language that must be included in the fee agreement in order to place a flat fee in your operating account.  It is also important for an attorney to clearly differentiate between an advance retainer and a flat fee for the client, as unsophisticated consumers of legal services may not readily understand the difference.

The fee agreement should also discuss the issue of fee disputes up front.  For example, you can include language that says that the client should bring any problems with any bill to your attention within 30 days of receipt, so that you can proactively address them.  The agreement can also let the client know that, in the event of a fee dispute, the client has the option of participating in mandatory fee arbitration through the local bar association, pursuant to Business and Professions Code Section 6200 et seq.  In the event that the dispute cannot be resolved through Bar Association arbitration, the fee agreement can mandate private arbitration, if that is your preference.

There are many resources for crafting the best fee agreement.  The State Bar of California has form fee agreements at www.calbar.org, and some legal malpractice insurers provide sample language. It is important, though, to take the time to customize every fee agreement to the specific situation, so both the attorney and the client are clear on the terms of engagement from the outset.

The next step in avoiding fee disputes is to do upfront budgeting combined with the issuance of regular bills.  There is no downside to letting the client know early and often what the matter will cost. In litigation, because the cost can vary significantly based on how the dispute evolves, it may be necessary to update the budget at regular intervals.  Disputes are far less likely if the client is not surprised by a bill.

Business and Professions Code Section 6148 discusses certain requirements for billing fees: “All bills rendered by an attorney to a client shall clearly state the basis thereof.  Bills for the fee portion of the bill shall include the amount, rate, basis for calculation, or other method of determination of the attorney’s fees and costs.”  For costs, the statute requires that “[b]ills for the cost and expense portion of the bill shall clearly identify the costs and expenses incurred and the amount of the costs and expenses.”  There also certain requirements about responding to a client request for a bill.

The State Bar of California also provides use full guidance to attorneys in the form of fee arbitration advisories, which can be found at http://www.calbar.ca.gov/Attorneys/Attorney-Regulation/Mandatory-Fee-Arbitration/Arbitration-AdvisoriesThese advisories deal with a variety of common issues, such as bill padding, nonrefundable retainer provisions, determination of a reasonable fee, the form of proper billing, and much more.  Knowing upfront what can cause a fee dispute puts you way ahead of the game.

Another key to avoiding fee disputes is clear communication.  The Rules of Professional Conduct require that attorneys keep clients updated on significant developments.  The proactive practitioner, however, will go far beyond this, frequently talking and emailing with the client about case status, strategy, goals, and budgeting.

Sometimes, however, despite clear and frequent communication about the matter and regular bills, the client simply lacks the cash flow to fund the continued representation.  In that instance, the attorney should have a candid conversation with the client as soon as possible.  It may be that the client is desirous of settlement in light of the situation.  The client may choose to liquidate investments or seek the help of friends and family members to fund the representation.  It may be that a payment plan is appropriate.  It may be that the attorney is comfortable continuing with representation because the attorney has a valid lien that complies with the Rules of Professional Conduct.  A failure to proactively address nonpayment, however, exacerbates the situation and increases the likelihood of a disintegration of the attorney-client relationship.

The consequences of allowing a full-blown fee dispute to emerge can be severe.  Not only can the fee dispute affect the ability of the attorney to run his or her law firm, but fee disputes can lead to counter allegations of malpractice, true or not.  It is well-known that lawsuits for fees invite cross-claims for malpractice.  Then, the attorney has to fund an insurance deductible and faces the prospect of increased premiums (and potentially insurability issues) in the future.  If the attorney is uninsured, this means that he or she must raise or reserve a substantial sum for the defense of the claim.  Litigation over the malpractice issues also interrupts the attorney’s normal operations and can cause high levels of stress and anxiety.  Finally, even an attorney goes through the whole process to secure a judgment for his or her fees, there may be issues with collectibility and bankruptcy.  Most fee awards are dischargeable in a Chapter 7 proceeding.

The solution is straightforward and commonsensical — a thoughtful case intake procedure, a tightly crafted fee agreement, proactive budgeting, and regular billing and communications.  These four steps will help you maximize your revenues, best serve the clients, and avoid unpleasant proceedings with client you once served.

Heather L. Rosing and David M. Majchrzak practice in the areas of legal ethics, risk management, and litigation of professional liability claims at Klinedinst PC in San Diego.

Article: Courts, Others Can See Your Request for Attorney Fees

May 20, 2020

A recent Lexology article by Tyler Maulsby, “Fee Applications: Be Careful What You Wish For Because Everyone May Find Out” reports on the recent case involving an attempt to destroy law firm billing records and fee data in a FOIA case.  This article was posted with permission.  The article reads:

A recent spat between King & Spalding LLP (“K&S”) and the U.S. Department of Justice shows what can happen when a law firm tries to balance its interest in protecting the confidentiality of its billing information with its interest in pursuing an award of attorneys fees.  In King & Spalding v. United States Department of Health and Human Services et al., No. 16-cv-01616 (D.D.C.), K&S, on behalf of its client, filed a complaint against the government for disclosure of documents under the Freedom of Information Act (FOIA), which allows for an award of attorneys’ fees in certain circumstances.  After K&S won the lawsuit, it sought fees in the amount of approximately $665,000.  In support of its motion, K&S asked to file its bills under seal arguing that public disclosure of its hourly rates, staffing strategies and “other details will harm the firm’s standing with respect to its competitors.”  Judge Amit Mehta the U.S. District Court for the District of Columbia denied K&S’s request and ordered that K&S’s fee application must proceed in public view.  In response, K&S withdrew its request for fees altogether.  The firm further requested that the billing information it previously submitted remain under seal and that the court order the government to destroy its service copies of K&S’s motion.  Although the court declined to order the government to destroy the billing information, the court did permit the exhibits to K&S’s motion with the billing information to remain under seal in light of K&S’s decision to withdraw its motion

From a legal ethics standpoint this case raises a number of interesting issues.  First, are legal bills confidential?  Rule 1.6(a) of the New York Rules of Professional Conduct defines confidential information as information that is gained during or relating to the representation that is either (i) privileged, (ii) likely to be embarrassing or detrimental to the client if disclosed; or (iii) information that the client has asked the lawyer to keep confidential. However, Rule 1.6(b)(5)(ii) permits a lawyer to disclose confidential information in order to “establish or collect a fee."  As a result, even if information about how much the lawyer charged a client is “confidential“ within the meaning of the ethics rules, the lawyer would be permitted to disclose that information in order to establish or collect a fee, which includes a fee application.

Second, does a law firm have an independent interest in keeping its bills confidential?  In the above case, K&S argued that it needed to keep information about its hourly rates and staffing decisions under seal in order to protect its competitive advantage in the marketplace.  Although the district court disagreed, it is worth noting that the court’s decision focused on the fact that K&S was seeking fees from a governmental agency, meaning that any fee award would ultimately be paid by taxpayers.  In other cases not involving public funds, a court may have more leeway to seal billing records, especially if all of the parties agree in advance.

Third, be careful about inadvertently disclosing privileged information. In many jurisdictions, including New York, billing records are generally not protected by the attorney-client privilege.  However, descriptions in billing records that are detailed enough to disclose advice provided to a client or other communications concerning the representation may be protected and should be redacted prior to filing.

Finally, before filing a fee application, the lawyer should make sure that everyone is on the same page about whether the application can and will proceed under seal.  This may include requesting advance leave from the court and consent of opposing counsel. In K&S’s case, it seems that the district court reversed its original decision to allow the firm to submit records under seal.  However, in either case, if there is a possibility that the lawyer will not be permitted to file under seal, the lawyer should consult with his or her client and determine whether the client still wants the lawyer to proceed with the application.

Tyler Maulsby is a Partner at Frankfurt Kurtnit Klein & Selz PC in New York.  He is counsel to the Litigation, Legal Ethics & Professional Responsibility, and Securities Fraud & White Collar Defense practice groups.  He is listed as a 2019 “Rising Star” by Super Lawyers magazine. 

Article: Recovering Attorney Fees Just Got Easier in Georgia

May 18, 2020

A recent Barnes & Thornburg blog post by Eric S. Fisher, “Recovering Attorney's Fees Under Georgia Law Just Got Easier” reports on a recent case in Georgia.  This article was posted with permission.  The article reads:

One of the advantages to business litigation in the state of Georgia is the ability for experienced litigators to wield the state’s statute for the recovery of attorney’s fees and expenses of litigation, known as Official Code of Georgia Annotated (OCGA) Section 13-6-11, as a sword for their clients. 

The case law interpreting Section 13-6-11, specifically Byers v. McGuire Properties, Inc. and its progeny, inadvertently created an inherent conflict between Georgia’s laws favoring settlement and the responsibility of litigators to serve as effective advocates for their clients. 

On April 6, the Supreme Court of Georgia resolved that conflict.  In SRM Group, Inc. v. Travelers Property Cas. Co. of America, the court established that “a plaintiff-in-counterclaim asserting an independent claim may seek, along with that claim, attorney fees and litigation expenses under Section 13-6-11, regardless of whether the independent claim is permissive or compulsory.”

Business litigation primarily focuses on disputes that relate to a contract (i.e., an operating agreement, an asset purchase agreement, a subcontractor agreement, a promissory note, etc.) and, unless that contract contains an explicit provision for the recovery of attorney’s fees, the cost of complex litigation sometimes seems prohibitive to pursuing legitimate claims.  Enter Georgia’s Section 13-6-11, which allows a plaintiff to seek expenses of litigation if it can allege that the other side “has acted in bad faith, has been stubbornly litigious, or has caused the plaintiff unnecessary trouble and expense.”  In other words, even if the contract does not so provide, the plaintiff can at least attempt to recover its fees and costs under this statutory provision.

In most business litigation, each side asserts that the other side breached a contract and engaged in other illicit acts (i.e., fraud, breach of fiduciary duty, etc.).  For over a decade, until last week, the side that won the “race to the courthouse” in Georgia was not only able to seek recovery of its fees and costs under Section 13-6-11, but was able to block the other side from using the statute.  The only exception was for expenses associated solely with a “permissive” counterclaim – a claim that arose separately from or after the plaintiff’s claim. 

Thus, savvy litigators were able to use Section 13-6-11 as a shield if their client was the first to file in Georgia.  In other words, even if the other side asserted virtually identical claims in the form of counterclaims, its attempt to seek recovery would likely be subject to immediate dismissal.  

Dismissal of a counterclaim for recovery under Section 13-6-11 seemed equitable when the other side simply parroted the plaintiff’s claims in an attempt to artificially level the litigation playing field.  But, in most instances, the sword and shield aspect of the statute turned pre-litigation settlement negotiations into a game of Russian roulette in which parties sensibly worried that their decision to pull the trigger on a settlement counteroffer might kill the settlement negotiations and cause the other side to run to the courthouse and reap the spoils of being the first to file.  And, sometimes, attorneys would use settlement discussions as part of a “rope-a-dope” maneuver while they prepared their client’s pleading for filing and stealthily filed suit under the cover of settlement discussions. 

The decision in SRM Group, written by Justice Charles Bethel and joined by the seven other justices sitting at the time the case was heard, overrules Byers. As Justice Bethel succinctly explains in the opinion:

A “permissive” counterclaim is “any claim against an opposing party not arising out of the transaction or occurrence that is the subject matter of the opposing party’s claim.” OCGA § 9-11-13 (b).  By contrast, a “compulsory” counterclaim is “any claim which at the time of serving the pleading the pleader has against any opposing party, if it arises out of the transaction or occurrence that is the subject matter of the opposing party’s claim and does not require for its adjudication the presence of third parties of whom the court cannot acquire jurisdiction.” OCGA § 9-11-13 (a).  

The SRM Group decision includes insightful reviews of prior relevant cases and an interesting stare decisis analysis.  But the crux of the holding is that Byers relied upon a Georgia Court of Appeals decision that improperly equated a mere “independent claim” (a cause of action in addition to the counterclaim under Section 13-6-11) with a “permissive claim” when it held that a plaintiff-in-counterclaim cannot pursue recovery under Section 13-6-11 if its counterclaims were compulsory.  As Justice Bethel concluded, “We see no basis in the text of the statute or otherwise for such an equation,” and then went on to add, “Nothing in the text of OCGA § 13-6-11 suggests that awards of fees and expenses are limited to permissive counterclaims.  Nor as a practical matter is a distinction between permissive and compulsory counterclaims always a workable distinction ….”

The recent SRM Group decision rights a wrong that distorted the ability to use Section 13-6-11, allowing future litigants to properly include a counterclaim for recovery of fees and costs under that statute along with any other independent counterclaims.  Whether those litigants will actually be able to recover under 13-6-11 (“the jury may allow” recovery) is a subject for another review.    

Eric S. Fisher is a Partner at Barnes & Thornburg in Atlanta.  Eric serves as trusted confidant and counselor, as well as the voice of reason, to clients who are in the midst of difficult and challenging disputes and litigation.  With deep experience in federal and state trial and appellate courts, as well as with various alternative dispute resolution proceedings, Eric represents individuals and companies in a wide variety of cases.