Fee Dispute Hotline
(312) 907-7275

Assisting with High-Stakes Attorney Fee Disputes

The NALFA

News Blog

Category: Fee Doctrine / Theory

Novel Fee Award Factors in $5M Fee Request

September 5, 2017

A recent Law 360 story by Matt Chiappardi, “C&J Energy Blasts $5M Legal Fee Bid in Merger Suit,” reports that C&J Energy Services Inc. blasted a $5 million fee request from a shareholder who unsuccessfully challenged a $2.9 billion merger with Nabors Industries Ltd. in Delaware Chancery Court, arguing the suit did not result in any corporate benefit and the bid would be squelched anyway due to C&J’s prior bankruptcy.

The suing shareholder — The City of Miami General Employees’ and Sanitation Employees’ Retirement Trust, whose case was thrown out by the Chancery Court a year ago — pushed for the fee award in July, arguing its lawsuit spurred a $250 million reduction in the cash price C&J paid Nabors as part of the deal, a “massive cash reduction” that benefited C&J stockholders.

But C&J counters that the lawsuit had no effect, arguing the action was essentially dormant when the price reduction took place and was eventually tossed by the Chancery Court in a decision upheld by the Delaware Supreme Court in March.

“There is absolutely no support for plaintiff’s theory that its lawsuit spooked C&J’s directors into asking for the price reduction to whitewash their alleged breaches of fiduciary duties,” C&J said in its objection to the proposed fee award.  “During the entire time that the C&J board was pursuing the price reduction, plaintiff’s lawsuit was on life support.”  C&J also argues that the Chancery Court need not even consider the merits of the fee bid, contending that it is essentially a prepetition claim in its bankruptcy case initiated in 2016 in the Southern District of Texas.

The fee request is a claim from 2015, and the suing shareholder never filed a proof of claim in the Chapter 11 case, only a statement and reservation of rights that it was not objecting to the company’s plan because the exit strategy wouldn’t affect the action against nondebtor directors in Delaware, C&J said in its objection.

But the party from whom the suing shareholder is seeking the fee award in the Chancery Court is the debtor, which has since emerged from Chapter 11 in January, C&J argues.  C&J completed its $2.9 billion merger with Nabors in 2015, with Nabors receiving about $688 million in cash and retaining 55 percent of the equity in the newly formed company.  The overall cost of the deal to C&J was scaled back by $250 million at one point for reasons that were said to reflect energy market weakening and a need to shore up stockholder support, according to court records.

The case is City of Miami General Employees' and Sanitation Employees' Retirement Trust v. C&J Energy Services Inc. et al., case number 9980, in the Delaware Court of Chancery.

A New Standard for Attorneys’ Fee Awards in Copyright Cases

August 4, 2017

A recent article in Law 360 by Barry I. Slotnick and Tal E. Dickstein of Loeb & Loeb LLP, “A New Standard for Attorneys’ Fee Awards in Copyright Cases,” reports on the standard for shifting attorneys’ fees in copyright litigation.  This article was posted with permission.  The article reads:

Earlier this month, the U.S. Supreme Court issued its decision in Kirtsaeng v. John Wiley & Sons Inc. on the standard for shifting attorneys’ fees in copyright litigation.  Because copyright litigation is often expensive, and the opportunity (or risk) of an attorneys’ fees award plays a significant role in deciding whether to bring (or settle) a case, the decision was much anticipated among the media and entertainment industry as well as the copyright bar.  While the court’s decision — which directs lower courts to give significant weight to a losing party’s objectively unreasonable litigation position — is likely to deter some amount of meritless copyright litigation, the inability to collect a fee award from an impecunious litigant sometimes requires resort to other methods of deterrence.

The Need for a Uniform Standard

The Supreme Court last addressed the standard for shifting attorneys’ fees under Section 505 of the Copyright Act in 1994.  The court in Fogarty v. Fantasy Inc. held that courts must treat prevailing defendants the same as prevailing plaintiffs when deciding whether to issue an attorneys' fee award, but it offered little guidance on the standard to be applied in making that decision.  In the absence of a definitive standard, the lower courts have looked to a footnote in Fogarty that identified several nonexclusive factors used in deciding whether to issue a fee award: frivolous, motivation, objective unreasonableness (both factual and legal), and the need for compensation and deterrence.

Without clear direction from the Supreme Court as to how these factors were to be weighed, the courts of appeal differed widely in how they considered attorneys' fee motions.  Some adopted a presumption in favor of fee awards, others endorsed a case-by-case determination, focusing on the four Fogarty factors, while others permit district courts to look to as many as a dozen other factors.  The Second Circuit, for its part, focused primarily on the reasonableness of the losing party’s position.

Kirtsaeng’s Journeys to the Supreme Court

When the Supreme Court granted certiorari, it punched Supap Kirtsaeng’s ticket for a second trip to the high court.  His first visit stemmed from a textbook arbitrage business that he launched while studying at Cornell University.  Kirtsaeng bought low-cost foreign-edition textbooks in his native Thailand, shipped them to the United States, and resold them for a profit.  When the textbook publisher, John Wiley, sued for copyright infringement in the Southern District of New York, Kirtsaeng relied on the first-sale doctrine, which permits the resale of copies of copyrighted works.  The trouble for Kirtsaeng was that most courts, including the Second Circuit, had held that the first-sale doctrine did not apply to copies made outside the United States.  Kirtsaeng litigated the issue all the way to the Supreme Court, which handed him a 6-3 victory, ruling that the first sale doctrine does, in fact, apply to copies made outside the United States.

Although he prevailed in the Supreme Court, the district court denied Kirtsaeng’s attempt to recover his attorneys’ fees — including more than $2 million spent on the Supreme Court appeal — finding that none of the other Fogerty factors outweighed John Wiley’s reasonable litigation position.  The Second Circuit affirmed, and Kirtsaeng again successfully petitioned for a writ of certiorari to the Supreme Court.

Objective Unreasonableness Given Significant Weight

Justice Elena Kagan, writing for a unanimous court, first rejected Kirtsaeng’s contention that fees should be awarded where a lawsuit has clarified the boundaries of the Copyright Act.  That standard was both unworkable, because the ramifications of a case might not be fully known until far in the future, and unlikely to encourage meritorious litigation, because a fee award would be tied more to a litigant’s appetite for risk rather than the reasonableness of its litigation position.

Instead, the court held that substantial weight should be given to the objective reasonableness of the losing party’s litigation position.  That approach would best promote the purposes of the Copyright Act — encouraging creative expression, while also allowing others to build on existing works.  An emphasis on objective reasonableness would, according to the court, “encourage parties with strong legal positions to stand on their rights and deters those with weak ones from proceeding with litigation.”

While objective (un)reasonableness will play an outsized role in deciding wither to shift fees, the court explained that district courts must still consider fee motions on a case-by-case basis, considering all of the circumstances.  The court identified two scenarios in particular that could warrant fees despite the losing party’s reasonable position — where the loser engaged in litigation misconduct, or where a party engaged in repeated instances of infringement or overaggressive assertions of copyright claims.

Other Methods of Combating Frivolous Copyright Litigation

In many cases, the Supreme Court’s decision will no doubt discourage meritless litigation.  A plaintiff whose copyright ownership is questionable, or who has scant evidence of infringement, is unlikely to file suit, out of fear that it will have to pay the defendants’ attorneys’ fees.  And a defendant who has no colorable defenses is unlikely to put up much of a fight, lest it be forced to pay the plaintiffs’ attorneys’ fees, on top of a damages award and the costs of any injunctive relief.

But this is true only where a party has something to lose from an adverse fee award.  All too often, it seems, individuals with little or no resources bring frivolous infringement claims against well-known celebrity or entertainment-industry defendants, in the hopes of extracting a nuisance settlement, or of surviving to a jury trial where they rely more on sympathy than evidence.  For these impecunious plaintiffs — who are often assisted by contingency counsel — the risk of an attorneys’ fee award is not an effective deterrent, because they are essentially judgment-proof.

One method of combating this type of frivolous litigation is to seek sanctions against the plaintiffs’ counsel under Rule 11 of the Federal Rules of Civil Procedure, which prohibits filings that lack evidentiary or legal support, or under or Title 28, Section 1927 of the US Code, which targets unreasonable and vexatious litigation.  Unlike an attorneys’ fee award under Section 505 of the Copyright Act, which can be issued only against a party, a sanction under Rule 11 or Section 1927 can be imposed on counsel.  And while courts are sometimes reluctant to sanction lawyers for fear of chilling meritorious litigation, in truly egregious cases, seeking sanctions against counsel may be the only way to avoid having to litigate meritless copyright infringement claims.

Barry Slotnick and Tal Dickstein are partners in Loeb & Loeb's New York office.

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.