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Category: Fee Doctrine / Theory

Federal Circuit Realizes District Judges Call Shots on Fee Awards

April 6, 2017

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."

NALFA Hosts CLE Program with Sitting Federal Judges

March 24, 2017

Today, NALFA hosted the CLE program “View From the Bench: Awarding Attorney Fees in Federal Litigation”.  This program featured a panel of sitting federal judges.  This is the third CLE program NALFA has hosted with an all-judicial panel of sitting federal judges. 

The U.S. District Court Judges, the Honorable Frederic Block, Senior Judge from the U.S. District Court for the Eastern District of New York and the Honorable David R. Herndon, District Judge from the U.S. District Court for the Southern District of Illinois, discussed a range of attorney fee and legal billing issues in federal litigation.  The panel addressed fee shifting cases, prevailing party issues, and fee calculation methods. The panel also took questions from the audience.

This live and remote CLE program was approved for CLE credit hours in California, Florida, Illinois, and Texas.  CLE credit hours are still pending in Ohio and Pennsylvania.  Over 75 attorneys from across the U.S. registered for this multi-state CLE program.  This 120-minute CLE program was recorded and is available for purchase on-demand.

Judge Denies Fee Award to State AGs in Antitrust Case

March 2, 2017

A recent NLJ story by C. Ryan Barber, “Judge Refuses Fee Award to State AGs in Antitrust Case,” reports that nearly a year after striking down Staples Inc.’s proposed takeover of Office Depot, a federal judge in Washington refused to award $175,000 in legal fees to the Pennsylvania and District of Columbia attorneys general for their role in challenging the office supply chains’ $6.3 billion deal.

The two offices teamed up with the Federal Trade Commission (FTC) in a suit that alleged the proposed deal would hurt competition in the market for office supplies sold in bulk to large corporate clients.  In May, U.S. District Judge Emmet Sullivan sided with regulators and granted a preliminary injunction.  Staples and Office Depot abandoned their merger plans.

Pennsylvania and D.C. argued they were entitled to fees under a provision of the Clayton Act that allows for the reimbursement of legal costs when the plaintiff “substantially prevails.”  Sullivan said there was one problem: Regulators prevailed not under the Clayton Act but the FTC Act, which does not grant legal fees to winning plaintiffs.

"Simply put, moving plaintiffs cannot have it both ways,” Sullivan wrote in a 10-page opinion.  “They cannot ride the FTC’s claim to a successful preliminary injunction under the more permissive [FTC Act] standard and then cite that favorable ruling as the sole justification for fee-shifting under the more rigorous Clayton Act standard."

Pennsylvania and District of Columbia offices had argued that the preliminary injunction directly broke up the merger, allowing them to recoup costs under the so-called “catalyst rule.”  But Sullivan was not persuaded.

As Staples and Office Depot pointed out, Sullivan wrote, “the catalyst rule as a mechanism for obtaining attorneys’ fees in certain circumstances was rejected by the Supreme Court in 2001,” in the case of Buckhannon Board and Care Home, Inc. v. West Virginia Department of Health and Human Resources.

The FTC had taken the lead in the antitrust challenge—a fact Staples and Office Depot raised to belittle the two offices’ role in the case.  The two companies described the work from Pennsylvania and D.C. as duplicative of the FTC’s, poorly documented and “largely spent on non-determinative issues (to the extent it is possible to determine what they worked on with any specificity at all).”

The Pennsylvania attorney general’s office requested $142,548, the District of Columbia $33,547—amounts that, if granted, would have represented an “unprecedented windfall,” Staples and Office Depot argued.  Weil, Gotshal & Manges represented Staples, and Simpson, Thacher & Bartlett represented Office Depot.

Sullivan said Pennsylvania and D.C. “effectively ask this court to take an unprecedented step.”  The choice to challenge the deal under the FTC Act was a “strategic one,” Sullivan wrote.  “Nonetheless, moving plaintiffs cannot bring a petition for fee-shifting under a provision under which they did not prevail,” he wrote.

Fee Allocation Dispute in NCAA Antitrust Case

February 28, 2017

A recent New York Law Journal by Charles Toutant, “Suit Says Lawyer Has Been Shortchanged on Fees in $60M Video Game Settlement,” reports that a New Jersey lawyer claims in a suit that class action firm Hagens Berman Sobol Shapiro shortchanged him on fees from a $60 million settlement of class action suits on behalf of college athletes over the use of their names and likenesses in video games.

Timothy McIlwain of Linwood claims Hagens Berman breached a contract between plaintiffs lawyers concerning sharing of fees in his suit against the firm and three principals, which was filed in federal court in the District of New Jersey.  In addition to the firm, the suit names managing partner Steven Berman and partners Leonard Aragon and Robert Carey as defendants.  Aragon said he had not had a chance to review the lawsuit, but said any claim contradicting a Northern District of California judge who awarded fees would be "frivolous."

The suit claims Hagens Berman breached a contract it entered into with McIlwain concerning division of fees from class action litigation against video game maker Electronic Arts and the National Collegiate Athletic Association.  Roughly 24,000 class members received payments averaging $1,600 each for appearing in a series of video games produced by EA between 2003 and 2014.  In July 2015 a U.S. judge in San Francisco approved the $60 million settlement, which was brought on behalf of college football and basketball players who said their rights of publicity were violated by unauthorized depictions of them in video games.

U.S. District Judge Claudia Wilken of the Northern District of California awarded $5.7 million in attorney fees to Hagens Berman in the combined settlement of three suits against EA and the NCAA on Dec. 10, 2015.  The judge awarded $696,000 to McIlwain after concluding that his fee application sought payment for several items that were unrelated to the case.

But McIlwain's suit cites an agreement between plaintiffs firms in the video game litigation that called for the pooling of any fee award, and a division giving 60 percent to Hagens Berman and 40 percent to McIlwain and his co-counsel, the Lanier Law firm.  Berman agreed to those terms in a Sept. 24, 2013, email that is included in an exhibit to McIlwain's complaint.

McIlwain brings counts for breach of contract, breach of the covenant of good faith and fair dealing, and interference with prospective economic advantage.  He seeks compensatory and punitive damages as well as costs, interest and legal fees.

McIlwain filed suit in state court on behalf of former Rutgers University football player Ryan Hart in 2009.  EA removed the case to U.S. District Court for the District of New Jersey.  Around the same time, Hagens Berman's attorneys filed suit in the Northern District of California on behalf of Sam Keller, who was a quarterback at Arizona State University and the University of Nebraska.

McIlwain's case, Hart v. Electronic Arts, was dismissed by a federal judge in New Jersey who found EA's use of the plaintiff's likeness was protected by the First Amendment. But t hat decision was overturned by the U.S. Court of Appeals for Third Circuit, which sent the case back to District Court in May 2013.

Meanwhile, in Keller v. NCAA, EA appealed a District Court judge's ruling denying its motion to strike right-of-publicity claims asserted by Keller.  EA claimed that its use of the player's likeness and jersey numbers was a transformative use and therefore protected by the First Amendment.  But the Ninth Circuit affirmed the lower court in July 2013.

Lawyers for those cases and for a similar suit, O'Bannon v. NCAA, signed their fee-splitting agreement on Sept. 24, 2013.  And two days later, on Sept. 26, 2013, EA agreed at a mediation session to settle the three suits for $40 million.  In June 2014, the NCAA agreed to pay $20 million to settle the three suits.

Hagens Berman argued before Wilken that it should receive the largest portion of the fee award in the case because a ruling it obtained from the Ninth Circuit in Keller was the catalyst for the $60 million settlement.  McIlwain, for his part, maintains that a ruling he received from the Third Circuit in Hart was the catalyst for the settlement and, therefore, he is entitled to over $4 million in fees.

But Wilken said in a Dec. 10, 2015, order that the right-of-publicity claims raised under California law in Keller exposed EA to the greatest liability.  That finding weighed in favor of a finding that the Keller case made the most significant contribution to the settlement, Wilken said.

Aragon, who is in Hagen Berman's Phoenix office, said his firm has not been served with the complaint yet, but added that the fee distribution was resolved by Wilken.  "Any attempt to bypass the court's order is frivolous.  If we are served, we will move to dismiss the case and will seek fees and costs against Mr. McIlwain."

Aragon said the email cited by McIlwain was "part of a much larger agreement and that agreement never came to fruition.  I would suggest to him that he re-read Judge Wilken's order and dismiss his case."

The litigation was notable because it marked the first time the NCAA paid for the use of the name, image and likeness rights of student athletes.  "Many students received thousands of dollars from the NCAA as a result of the Hagens Berman's work, and the settlement was universally well received by the athletes," he said.

Best Practices Strengthen Your Standing in Legal Fee Analysis

February 5, 2017

Legal fee analysis is the comprehensive review and analysis of attorney fees and costs in an outside legal matter.  Professionals who routinely perform outside legal fee analysis include attorney fee experts, special fee masters, bankruptcy fee examiners, fee dispute mediators, and legal bill auditors.  Once known as legal auditing, a rather groundless, self-qualifying, and haphazard field, legal fee analysis has now matured and expanded into a new fully developed practice area of law, thanks in part to organization and professionalization.

Any new field of analysis, let alone one that deals with the sometimes contentious aspects of legal fees, requires some manner of professional ethics.  Emerging professions, like legal fee analysis must be grounded by some degree of qualification and some elements of generally accepted principles.  Indeed, professional standards can help ensure that professionals within a given field are qualified, competent, and ethical.

As part of our mission, NALFA has established Best Practices in Legal Fee Analysis.  This professional code of conduct was developed over several years with input and consensus from thought leaders from across the profession.  These peer review driven standards strengthen the legal fee analysis profession by ensuring integrity in the process and reliability in the results.  These best practice measures promote values such as ethics, independence, and professional development.  These best practice measures represent the mainstream of legal fee analysis.

As a 26 U.S.C. § 501(c)(6) organization, NALFA's statutory obligation is to improve the lines of business within the legal fee analysis profession.  Yet some old vestiges from the legal auditing era still remain.  As such, we encourage all professionals who routinely review and analyze outside legal fees or legal billing entries to read, understand, and follow Best Practices in Legal Fee Analysis.  Following these best practice measures only strengthens your standing within the legal fee analysis community.  We'd also encourage clients of outside legal fee analysis to choose a professional who follows Best Practices in Legal Fee Analysis.

For more on Best Practices in Legal Fee Analysis, visit http://www.thenalfa.org/Best-Practices/