A recent the Law 360 story by Natalie Olivo, “Four Seasons Hotel’s $11M Fee Spat Sent to Arbitration,” reports that the owners of a Four Seasons-branded hotel in Los Angeles will have to arbitrate their request for the hotel chain to return an award of nearly $11 million in legal fees stemming from a contract dispute over split loyalties, after a California judge cited the companies’ arbitration agreement.

In sending Burton Way Hotels LLC’s fee request to arbitration, U.S. District Judge Philip S. Gutierrez noted that Ontario-based Four Seasons Hotels Ltd. has contended that the parties’ arbitration agreement covers the fee request, which should be decided by a new arbitration panel.  In addition, Judge Gutierrez said, Burton Way has indicated that it was also willing to have the fee request decided in arbitration.

“In light of the clear language in the parties’ arbitration agreement providing for the arbitrators’ power to adjudicate the questions presented in Burton Way’s fees motion, and the parties’ mutual agreement to bring the fees motion before the new arbitration panel, the court concludes that the fees motion is to be decided by the new arbitrators pursuant to the parties’ arbitration agreement,” Judge Gutierrez said.

The award at issue was handed down in underlying arbitration that dismissed Burton Way’s claims accusing Four Seasons Hotels of breaching their deal for the exclusive use of the brand and ordering Burton Way to pay Four Seasons $10.2 million in fees and costs.  However, after the Ninth Circuit vacated the award in October, Burton Way sought to have the payment returned, saying it is now owed more than $10.9 million with interest.

Neal Marder, an Akin Gump Strauss Hauer & Feld LLP attorney representing Burton Way, told Law360 that "we advised the court that Burton Way was comfortable with the panel deciding this issue so the decision was welcomed and not unexpected."

The dispute over Four Seasons' decision to manage and operate the nearby Regent Beverly Wilshire Hotel, which Burton Way says is a direct competitor, has been barreling back toward arbitration at least since Judge Gutierrez refused Burton Way's bid last month to void an agreement to arbitrate the dispute over a licensing deal under which Four Seasons has managed the Burton Way-owned Four Seasons Hotel Los Angeles since the late 1980s.

Burton Way had claimed the arbitration agreement was void because the hotel owner agreed to it only if a certain judge — who recused himself in January under a request from Burton Way alleging improper ex parte communications — was involved in the arbitration.  But Judge Gutierrez instead ruled that the provisions did not reference the judge in a way that would render the agreement void now that he has recused himself.

Following Judge Gutierrez’s order declining to void the agreement, the parties have squared off over remaining issues in the dispute.  Four Seasons in April told the court that Burton Way could not relitigate the entire contract case, arguing that the Ninth Circuit issued a very limited mandate for still-live issues to be contested when the case returns to arbitration.

According to Judge Gutierrez’s order, Four Seasons had noted that Burton Way’s fee request depends on a determination of which party is the “prevailing party,” which is a question reserved for the arbitrators.

While Burton Way had also agreed to arbitrate its fee request, the company claimed that Four Seasons was trying to keep the district court from ruling on the fees motion on the grounds that it has no jurisdiction under the parties’ arbitration agreement, while at the same time asking the court to rule on the scope of the Ninth Circuit’s order, rather than allowing both issues to be arbitrated.

The case is Burton Way Hotels Ltd. et al. v. Four Seasons Hotels Ltd., case number 2:11-cv-00303, in the U.S. District Court for the Central District of California.

A recent the NLJ story by Marcia Coyle, “Skadden Loses a Tax Dispute, and Jenner Wins Fee Fight,” reports that Jenner & Block won fees in a case, Parallel Networks v. Jenner & Block, that stemmed from a 2007 contingency fee arrangement in which Jenner agreed to represent Parallel Networks in two patent cases.

The fee arrangement contained a provision that allowed the law firm to withdraw from the representation and still get fees whenever it “determine[d] at any time that it is not in its economic interest to continue the representation.”  If the firm withdrew, Parallel Networks was to pay “an appropriate and fair portion of the Contingent Fee Award” at “the conclusion of any” patent lawsuit.  The agreement also called for arbitration of any disputes.

Jenner & Block did withdraw.  New counsel entered and settled the two patent cases.  In 2011, Jenner submitted a $10 million fee request that Parallel Networks would challenge.  The dispute went to arbitration and Jenner was awarded $3 million and a 16 percent future contingent stake.  On appeal, Parallel Networks argued the withdraw-and-still-pay provision was prohibited under Texas law.  Texas state courts upheld the award.

In the high court, Parallel Networks, represented by Daniel Geyser of Stris & Maher, argued the circuit courts were divided over whether public policy challenges are viable under the Federal Arbitration Act and also are confused about the permissible grounds for vacating arbitration awards following the Supreme Court’s 2008 decision in Hall Street Associates v. Mattel.  “There is simply no indication that Congress intended to intrude on the power of state courts, acting under settled state law, to resist arbitration awards that violate core state public policies,” Geyser wrote.

Jenner & Block waived its right to respond to Parallel Network’s petition.  In earlier litigation, the law firm had argued that it had invested 24,000 hours in the patent litigation, which formed the basis for the later successful outcome.  The firm said it had reason to withdraw because Parallel Networks was habitually late reimbursing litigation expenses.

“We’re obviously disappointed,” Geyser said.  “There was an acknowledged conflict on an important issue that has caused substantial confusion in the lower courts.  This case was an appropriate vehicle, and we wish the court had decided to take it up.”

A recent Metropolitan News story by Kenneth Ofgang, “Panel Upholds Award of ‘Fees-on-Fees’ Under Statute” reports that a statute that permits federal judges to sanction attorneys for vexatious litigation permits an award of fees to opposing counsel for litigating the right to fees, the Ninth U.S. Circuit Court of Appeals ruled.

In a published order, the panel—Judges Alex Kozinski, Richard A. Paez, and Marsha S. Berzon—denied reconsideration of the appellate commissioner’s ruling calculating sanctions against Boston attorney Michael J. Flynn and his client, Timothy Blixseth.  The two were ordered to pay nearly $192,000 in fees and costs incurred by several creditors of Blixseth, a co-founder of the bankrupt Yellowstone Mountain Club.  Blixseth was found jointly liable for all but around $34,000 of the award, for which Flynn was found separately liable by statute.

Blixseth and one of his ex-wives developed the Yellow Mountain Club as an exclusive resort for “ultra-wealthy” golfers and skiers.  He has blamed the 2008 mortgage crisis for the collapse of his finances.  His wealth was estimated by Forbes magazine at $1.3 billion when it named him one of the 400 wealthiest Americans in 2006.  Creditors have claimed Blixseth has hidden assets.

Blixseth, represented by Flynn, appealed the denial of a motion to recuse the District of Montana bankruptcy judge assigned to his case.  The Ninth Circuit affirmed, agreeing with the district judge that Blixseth’s accusations were “a transparent attempt to wriggle out of an unfavorable decision by smearing the reputation of the judge who made it.”

In August 2015, the Ninth Circuit panel said Blixseth and Flynn were subject to attorney fees incurred by creditors on that appeal, citing Rule 38 of the Federal Rules of Appellate Procedure and 28 U.S.C. §1927.  “If a court of appeals determines that an appeal is frivolous, it may, after a separately filed motion or notice from the court and reasonable opportunity to respond, award just damages and single or double costs to the appellee.”

Section 1927 provides: “Any attorney or other person admitted to conduct cases in any court of the United States or any Territory thereof who so multiplies the proceedings in any case unreasonably and vexatiously may be required by the court to satisfy personally the excess costs, expenses, and attorneys’ fees reasonably incurred because of such conduct.”

In the order, the panel agreed with the appellate commissioner that fees incurred in litigating the right to fees, or “fees on fees,” cannot be awarded under Rule 38, but may be awarded under §1927.  The panel also denied, without comment, Flynn’s motion that the judges recuse themselves.

Because Rule 38 refers to “damages,” the judges said, it is not a fee-shifting statute, and the only attorney fees that may be awarded under the rule are those “incurred in defending against the frivolous issues or frivolous portions of an appeal.”

Section 1927, by contrast, “may be characterized as a fee-shifting provision, despite its sanctions trigger,” the panel said.  The legislation’s purpose, the judges said, it to shift the burden of the vexatious litigation onto the vexatious lawyer, noting that fee-shifting statutes generally are interpreted as permitting the award of “fees on fees.”

The case is Blixseth v. Yellowstone Mountain Club, LLC, 12-35986.

A recent Law 360 story by Rick Archer, “US Airways Defends $122M Fee Bid in Sabre Antitrust Suit” reports that US Airways defended its request for $122 million in attorneys' fees for its $15 million victory against trip-planning giant Sabre Inc. in a suit over a contract giving booking access to all of the airline's seats, saying the fees are reasonable and in line with Sabre’s own legal costs.

Refuting Sabre’s argument that the fee request should be trimmed by nearly 90 percent because of unnecessary expenses, failure to get the full award sought and the dismissal of three-fourths of its claims, US Airways said the recommendation would make its fee award $40 million less than Sabre’s own reported defense costs.

“Although Sabre begrudgingly concedes that US Airways is entitled to some of what it incurred in this lengthy and aggressively defended case, reading Sabre’s opposition, one would think that Sabre — not US Airways — had won,” US Airways said.

The airline won a $5 million verdict, automatically tripled to $15 million, late last year in its case accusing Sabre — which controls 58 percent of the ticket distribution market — of restraining trade by forcing unfavorable terms on US Airways in a 2011 contract that required the airline to give Sabre access to all of its seats in order to reach the large cadre of travel agents that use the Sabre system.

US Airways has requested $122 million in attorneys’ fees and costs, arguing last month that the lengthy and complex nature of litigation justified fees that are more than eight times the amount of damages.  Sabre had argued US Airways should receive only $13 million in fees, noting three of its four original claims were rejected and the award was less than US Airways had asked for, and claiming a number of specific decisions in the airline’s legal strategy had generated unnecessary fees.

US Airways replied that the claim it ultimately won on was always the focus of their efforts, saying two of the claims were dismissed at the beginning of the case when minimal work had been done and the third had required only a fraction of the work.  “The Clayton Act does not require a plaintiff to prevail on all motions and claims in order to be entitled to a full recovery, particularly where it wins what it set out to achieve,” the airline said.

The airline said the reasonableness of the fees was justified by Sabre’s own $53 million in reported attorneys' fees, and argued this number was deceptively low because defense counsel Bartlit Beck Herman Palenchar & Scott LLP agreed to work at a discount in exchange for a success fee.

“Sabre refused our request to see Bartlit’s success-fee rate, but it appears to be nearly 50 percent based on the bonus Sabre paid for defeating declaratory relief,” it said.  “Even a 30 percent bonus would have increased Sabre’s fees to roughly $70 million had it, not US Airways, won.  That approximates US Airways’ roughly $85 million in attorneys’ fees.”

The case is US Airways Inc. v. Sabre Holdings Corp. et al., case number 1:11-cv-02725, in the U.S. District Court for the Southern District of New York.

A recent NLJ story by Scott Graham, “Federal Circuit Faces Facts: District Judges Call Shots on Fee Awards,” reports that a District Court in Texas is on the verge of overruling the U.S. Court of Appeals for the Federal Circuit on exceptional case attorney fees.  Two Federal Circuit judges voiced serious displeasure that U.S. District Judge Rodney Gilstrap, of the Eastern District of Texas ignored their strong hint two years ago to award fees in a patent dispute between online retailer Newegg and Acacia Research Corp. subsidiary Adjustacam Inc.

But the judges recognized that sending the case back to the Eastern District of Texas a second time may not make any difference.  That's because even though appellate courts nominally have authority over trial courts, the U.S. Supreme Court has effectively reversed the balance of power on patent fee awards.  "It really seems what [Gilstrap] did here was pay lip service to our mandate, and it's very frustrating," Judge Todd Hughes said during arguments in Adjustacam v. Newegg.  "But if we send it back, he's probably going to deny fees again, and it's all going to be a big waste of time."

"It could be that we never find an exceptional case" unless the district judge does too, Judge Jimmie Reyna said.  "I'm looking at this case to see if there's any point where this court could say there's been an abuse of discretion."

Adjustacam is the latest round in a long-running battle between Acacia and Newegg over exceptional-case attorney fees.  Newegg's outspoken general counsel, Lee Cheng, left the company last year, but outside counsel Mark Lemley of Durie Tangri continued the fight, with Collins, Edmonds, Schlather & Tower partner John Edmonds representing Adjustacam.

Adjustacam sued 58 defendants in the Eastern District of Texas in 2010 over a patent on a rotatable camera mount.  Newegg insisted there was no basis for infringement, especially after U.S. District Judge Leonard Davis construed the claims in 2012.  Adjustacam dismissed its claims three months later because summary judgment briefs were imminent, according to Lemley; and because Adjustacam had settled with Newegg's suppliers, according to Edmonds.

Davis declined to award fees in 2013.  But the following year the U.S. Supreme Court eased the standard for awarding fees in its Octane Fitness decision, while giving district judges more discretion over whether to award them.  The Federal Circuit instructed Davis to reconsider Newegg's fee motion under the new standard.  Hughes' opinion for the court advised that Newegg's arguments "appear to have significant merit."

By then Davis had retired.  His successor Gilstrap adopted almost all of Davis' findings and conclusions.  In a footnote addressing the Federal Circuit opinion, Gilstrap wrote that he had tried "not to circumvent by hindsight the judgments and in-person evaluations that the trial judge who dealt with this case in the courtroom arena was best positioned to have made."

Lemley argued that Gilstrap willfully refused to follow the Federal Circuit's instructions.  "Judge Gilstrap didn't conduct his own evaluation of the facts, he block quoted and cited Judge Davis' previous determinations," Lemley said.  "He afforded no weight to this court's opinion remanding the case, even though this court went out of its way to say it saw significant merit in the frivolousness claim."  Hughes seemed to agree.  Gilstrap's decision "seems to ignore our mandate from our prior decision," he said.

But "even if we all agree" that Adjustacam's litigation position was baseless, Hughes said, "that alone doesn't entitle you to an award of the fees.  After Octane Fitness, the district courts get large discretion to look at the case and say, 'Does this stand out from all the others?'"  Lemley urged Hughes and his colleagues to simply declare the case exceptional, but Reyna also sounded hesitant.  "We have a situation here that let's say that I would find exceptional," he said.  "But yet I'm faced with this very rigorous standard of review" on appeal.

Edmonds argued that Adjustcam had solid grounds for its claims, having recovered as much as $3.7 million from one defendant.  There were "legitimate strategic reasons unrelated to the merits of the case of why Newegg was dropped," Edmonds said.  But that argument presumes that Adjustacam had a reasonable infringement theory, Hughes said.  "And post-claim construction, how can you possibly show any reasonable claim of infringement?" he said.  The Federal Circuit pointed that out in its previous opinion, and Gilstrap dismissed it "with that one-line throwaway sentence" about hindsight, Hughes said.

He was just getting started.  "We ordered the court to look at it all again, under the new standards, under Octane," Hughes said.  "And the court didn't do that.  It said I'm just wholesale adopting these factual findings and I'm not going to change the outcome."  Edmonds disagreed with that characterization.  But even if Gilstrap had found Adjustacam acted unreasonably, "within his discretion he could still find it not to be an exceptional case."

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