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Category: Fee Shifting

Mootness Attorney Fee Awards

October 16, 2017

A recent New York Law Journal article by David F. Wertheimer and Justine S. Brenner, “Mootness Attorney Fee Awards: Will New York Prove Friendly Than Delaware?,reports on mootness attorney fee awards.  This article was posted with permission.  Reprinted with permission from the September 29, 2017 edition of the New York Law Journal © 2017 ALM Media Properties, LLC. All rights reserved.  The article reads:

Mootness attorney fee awards are an established fixture of Delaware's fee-shifting rules available to plaintiffs in corporate governance litigation. That is not true of New York law, but the legal landscape may change. Over the past few years, there has been a marked trend of corporate governance litigation involving Delaware corporations being filed outside of Delaware's Court of Chancery. New York is seeing its share of that exodus. Whether that share expands may depend, at least partly, on whether New York law on the award of mootness fees evolves to be more or less favorable than Delaware law. Moreover, it is New York law that matters because in corporate governance litigation, even though claims of director misconduct are determined by the law of a company's state of incorporation, New York law governs the award to plaintiffs of their legal fees. Central Laborers' Pension Fund v. Blankfein, 111 A.D.3d 40, 45 n.8, (1st Dep't 2013).

Delaware, like New York, follows the "American Rule," under which each party bears its own legal fees and expenses, subject to certain exceptions. One such exception Delaware recognizes under its Court of Chancery's broad equity jurisdiction is in corporate governance actions, when a plaintiff's efforts have yielded a "corporate benefit." Tandycrafts v. Initio Partners, 562 A.2d 1162, 1164-65 (Del. 1989). Mootness fees, which are within the scope of that exception along with attorney fee awards arising from settlements and judgments, are triggered by a defendant acting to "moot" a plaintiff's claim. Such fee awards can arise in various settings, such as a class action challenging the adequacy of merger disclosures when the target voluntarily amends its proxy to include new disclosures or a derivative action contesting supposedly excessive executive compensation that the company later reduces.

Under Delaware law, mootness fee awards are available in class and derivative corporate governance actions upon a showing of three elements: (1) the litigation was "meritorious when filed;" (2) the defendant took action which rendered the litigation moot and produced "the same or a similar benefit" as sought by the litigation; and (3) there exists "a causal relationship between the litigation and the action taken producing the benefit." Dover Historical Soc'y v. City of Dover Planning Comm'n, 902 A.2d 1084, 1092 (Del. 2006).

Unlike Delaware, New York's fee-shifting rules applicable to corporate governance actions are rooted in statute: §626(e) of the Business Corporation Law (BCL) governs the award of attorney fees in derivative actions; C.P.L.R. Rule 909 controls the award of fees in class actions. Neither rule explicitly references fee awards in mooted cases nor have mootness fee awards been the subject of much New York case law development. What few decisions that have been reported, however, suggest that New York's rules will be as stringent as those Delaware applies, if not tougher.

Awards in Derivative Actions

Less than a handful of reported decisions by New York courts have considered a mootness fee award in a derivative action under BCL §626(e) and none have approved such an award. From these decisions, two rules governing potential mootness fee awards can be gleaned, both of which are similar to the standard Delaware employs. What New York might say about the other elements of Delaware's rule remains the open question.

Turning first to the overlapping elements, under New York law, a plaintiff must establish that his pleadings properly alleged that he had standing to assert a derivative claim consistent with the substantive law of the state in which the corporation was organized. Blankfein, 111 A.D.3d at 45-46. Delaware imposes the same requirement. See Grimes v. Donald, 791 A.2d 818, 822-23 (Del. Ch. 2000), aff'd, 784 A.2d 1080 (Del. 2001).

Second, as with all fee awards under BCL §626(e), the plaintiff must show that he achieved a "substantial benefit," which may include a "common fund" or meaningful "corporate therapeutics." Sardis v. Sardis, 56 Misc. 3d 727, 739-40 (Sup. Ct. 2017); accord Seinfeld v. Robinson, 246 A.D.2d 291, 294-98 (1st Dep't 1998). Again, Delaware law requires the same. Tandycrafts, 562 A.2d at 1164-65.

Turning to the open issues, the first is Delaware's requirement that plaintiff establish that his complaint was "meritorious when filed," meaning that it could withstand a motion to dismiss. Chrysler v. Dann, 223 A.2d 384, 387 (Del. 1966). There is good reason to expect that New York courts would impose a similar requirement. Courts applying BCL §626(e) have refused to approve the award of attorney fees in settlements of derivative actions when the actions lacked merit. See, e.g., Montro v. Bishop, 6 A.D.2d 787, 787 (1st Dep't 1958), Kaplan v. Rand, 192 F.3d 60, 72 (2d Cir. 1999). Moreover, Delaware adopted its "meritorious when filed" requirement as a bulwark to deter "baseless litigation." Allied Artists Pictures v. Baron, 413 A.2d 876, 879 (Del. 1980). New York courts have acknowledged a similar goal of deterring strike suits and recognized that various features of derivative litigation—including the requirements for standing and demonstrating that a "substantial benefit" was achieved as a predicate for a fee award—are intended, at least in part, to achieve that goal. See Bansbach v. Zinn, 1 N.Y.3d 1, 9, 7 (2003) (standing); Freedman v. Braddock, No. 24708/92, 1997 WL 34850128 (N.Y. Sup. Ct. June 27, 1997) (substantial benefit). Accordingly, precedent and policy favor construing BCL §626(e) as imposing a "meritorious when filed" requirement.

A second open issue is the requirement of demonstrating a causal nexus between the plaintiff's litigation and the defendant's action mooting the suit. Under Delaware law, a plaintiff receives a rebuttable presumption that its lawsuit caused the defendant's action, imposing on the defendant the burden of showing that the lawsuit "did not in any way cause their action." Allied Artists, 413 A.2d at 880. Delaware adopted its rule on the pragmatic grounds that the defendant is in the best position to know the reasons for its own actions. Id.

It is far from certain, however, that New York courts would adopt Delaware's burden-shifting rule. For example, whereas Delaware applies its presumption to fee award requests in both the settlement and mootness contexts, id., New York courts, in the settlement context, have not employed a burden-shifting rule but instead require a showing that "plaintiffs achieved a 'substantial benefit.'" Seinfeld, 246 A.D.2d at 294; Seinfeld v. Robinson, No. 22304/90, 2001 WL 36023241 (N.Y. Sup. Ct. March 8, 2001) (burden rests on plaintiff to show entitlement to fees), aff'd, 300 A.D.2d 208 (1st Dep't 2002).

There is even less reason to apply a burden-shifting rule in mootness fee cases. As courts have observed, in contrast to settlements, fee awards in mootness cases can present a "particularly nettlesome task" of identifying the benefit obtained and its relation to the litigation. See In re First Interstate Bancorp Consol. S'holder Litig., 756 A.2d 353, 357 (Del. Ch. 1999), aff'd, 755 A.2d 388 (Del. 2000); cf. Blankfein, 111 A.D.2d at 49 (describing "causation of a substantial benefit" as a "complex issue" that is "likely to lead to protracted litigation"). Allowing a plaintiff to streamline that inquiry by presuming that chronology is equivalent to causation enshrines in doctrine what would otherwise be rejected as the logical fallacy post hoc ergo propter hoc. While Delaware has adopted such a rebuttable presumption on pragmatic grounds, its use comes at the price of enabling plaintiff to more easily claim an entitlement to fees. It thus undermines New York's policy of deterring "unwarranted litigation" by imposing on plaintiff the burden of "demonstrating that the action has caused a substantial benefit." Blankfein, 111 A.D.3d at 49 (in a mootness fee case, observing, in dicta, that plaintiff must demonstrate causation). New York courts may find Delaware's rebuttable presumption too steep a price to pay to simplify the fee award process, just as other courts have concluded. See, e.g., Lansky v. NWA, 471 N.W.2d 713, 714 (Minn. Ct. App. 1991) (rejecting presumption because it could encourage strike suits by failing to consider the facts of each case).

Awards in Class Actions

There is reason to believe that New York courts would assess mootness fee applications in class actions far differently than they might in derivative actions. Indeed, such fee awards may be unavailable in class actions.

That potentially differing treatment is due to the difference in the applicable statutory terms. Whereas BCL §626(e) permits a fee award if a derivative action "was successful, in whole or part," C.P.L.R. Rule 909 conditions the award of fees on a "judgment" having been "rendered in favor of the class." Accordingly, while a mooted derivative suit might be considered "successful" if it achieved a "substantial benefit," a mooted class action would not result in a "judgment" favorable to the class—even if, as consequence of the action having been filed, a "substantial benefit" was achieved. Thus, a strict construction of the statute might preclude the award of a mootness fee.

There does not appear to be any reported New York court decision directly addressing a mootness fee award in the class action context. Insight into the possible treatment of such an application, however, can be gleaned from the decision in La. Mun. Emps.' Ret. Sys. v. Cablevision Sys., 74 A.D.3d 1291 (2d Dep't 2010). That case arose from purported class actions brought on behalf of minority shareholders of Cablevision Systems, challenging a proposed stockholder buy-out by the controlling stockholders. The litigation settled once the offering price was increased, but the settlement was aborted because the acquisition never closed. At that point, the class actions essentially were moot. Despite the settlement's termination, class plaintiffs sought an award of counsel fees, which the trial court granted after finding that plaintiffs' efforts had yielded a substantial benefit. The Second Department reversed the fee award based on its finding that "the plaintiffs clearly did not obtain a judgment in favor of the class within the meaning of CPLR 909." Id. at 1293.

Although one decision does not necessarily sound the death knell on mootness fee awards in class actions, it illustrates New York courts' strict adherence to the American Rule in the absence of a recognized exception. See generally Flemming v. Barnwell Nursing Home and Health Facilities, 15 N.Y.3d 375, 379-80 (2010) (narrowly construing prior version of C.P.L.R. Rule 909).

Conclusion

When forum shopping, plaintiffs must consider not only whether the forum will be hospitable to the merits of their claims, but also to their counsel's fee requests. In corporate governance actions, plaintiffs should expect that New York's courts will evaluate mootness fee applications in derivative actions under standards at least as stringent as those in Delaware and may deny such applications entirely in class actions. Applying such standards should help prevent New York from becoming a second home for strike suits fleeing Delaware.

David F. Wertheimer is a partner at Hogan Lovells in New York. His practice includes private federal securities class actions and corporate governance litigation. Justin S. Brenner is a senior associate at the firm.

How to Determine When Litigation Costs Include Attorney Fees

September 7, 2017

A recent Texas Lawyer article by Trey Cox and Jason Dennis, “How to Determine When Litigation Costs Include Attorney Fees,” covers attorney fee recovery in Texas.  This article was posted with permission.  The article reads:

Under the American Rule, a party may only recover attorney fees on certain narrow claims.  When a party has some claims that support the award of attorney fees and some claims that do not, then the party must segregate the recoverable attorney fees from the nonrecoverable attorney fees, as in Tony Gullo Motors I v. Chapa, 212 S.W.3d 299, 311 (Tex. 2006).  The need to segregate fees is a question of law, and the courts of appeals apply a de novo standard of review.

Similarly, when a plaintiff has multiple related claims against multiple defendants, the plaintiff is required to segregate the fees owed by one defendant from any fees incurred while prosecuting the claim against any settling defendants, according to Stewart Title Guaranty v. Sterling, 822 S.W.2d 1, 11 (Tex. 1991).

Generally, where a party has failed to properly segregate their claims, and an award of attorney fees has been erroneously awarded, the case requires remand in order to determine what attorney fees are recoverable.  However, it is important to note that the subsequent decision in Green International v. Solis, 951 S.W.2d 384, 389 (Tex. 1997), did state that a failure to segregate fees "can result in the recovery of zero attorneys' fees."  The court did not explain the circumstances under which an award of zero attorney fees would result from a failure to segregate.  The evidence of unsegregated fees requiring a remand on the issue of attorney fees is more than a scintilla of evidence.

The party seeking fees may only present evidence relating to services that were necessarily rendered in connection with the claims for which attorney fees are recoverable, as in Flint & Associates v. Intercontinental Pipe & Steel, 739 S.W.2d 622, 624 (Tex. App.—Dallas 1987).  If a party tries to present evidence relating to services that were rendered in connection with claims that attorney fees are not recoverable, a party must object.  Failure to object to nonrecoverable attorney fees constitutes waiver (see Green International, at 389).  The issue of failing to segregate is generally preserved "by objecting during testimony offered in support of attorneys' fees or an objection to the jury question on attorneys' fees," as in McCalla v. Ski River Development, 239 S.W.3d 374, 383 (Tex. App.—Waco 2007).

Inexorably Intertwined Damages

In Texas, an exception to segregating evidence of attorney fees developed over the years.  Where the attorney fees rendered were in connection with claims arising out of the same transaction, and were so interrelated that their "prosecution or defense entails proof or denial of essentially the same facts," it was held that the segregation requirement could be avoided (see Stewart Title at 11).  The initial exception was phrased such that if an attorney could claim that the "causes of action in the suit are dependent on the same set of facts or circumstances, and thus are 'intertwined to the point of being inseparable,' the parties suing for attorney fees may recover the entire amount covering all claims."

After the holding in Stewart, which first acknowledged an exception to the requirement of segregating fees for claims that are intertwined, the courts of appeals were flooded with claims that recoverable and unrecoverable attorney fees are so intertwined that they could not be segregated. (See, e.g., Tony Gullo at 312.)  For many years after the recognition of the exception to segregation, parties tried to escape the segregation requirement by generically claiming that they could not segregate the claims.  They relied on the recognized exception to the duty to segregate when the attorney fees rendered were in connection with claims arising out of the same transaction and were so interrelated that their prosecution or defense entailed "proof or denial of essentially the same facts."

The Texas Supreme Court has now reined in this exception, providing that if attorney fees relate solely to a claim for which such fees are not recoverable, a claimant must segregate recoverable from unrecoverable fees, but when discrete legal services advance both a recoverable and unrecoverable claim that they are so intertwined, they need not be segregated.

For example, the court explained that certain legal services such as: "requests for standard disclosures, proof of background facts, depositions of the primary actors, discovery motions and hearings, [and] voir dire of the jury" wouldn't be barred from recovering attorney fees just because they served multiple purposes.  However, the court was careful to point out that the mere presence of intertwined facts will not make tort fees recoverable. The new exception to the necessity of segregating fees is that "only when discrete legal services advance both a recoverable and unrecoverable claim" then they can be considered as being so intertwined as to not need segregation.  The segregation requirement can be met by offering expert opinion as to how much time was spent in relation to the recoverable claims versus the unrecoverable claims.

Defending Against Segregation

Whether supporting or attacking an award of attorney fees, the expert must deal specifically with segregation of fees.  The party must segregate fees incurred in connection with nonrecoverable claims, claims against other parties, or other lawsuits.

Trey Cox is a partner at Lynn Pinker Cox & Hurst.  He has spent nearly 20 years helping clients, from Fortune 500 corporations to entrepreneurs, resolve large, complicated and often high-profile business disputes.  Jason Dennis is a partner at the firm.  He has trial and appellate experience representing a diverse group of clients from Fortune 500 companies, to bankruptcy trustees, to individuals both as plaintiffs and defendants.

Defense Win $18.5M in Fees in Antitrust Case

August 28, 2017

A recent Law 360 story by Carolina Bolado, “Patheon Gets $18.5M Fees After Prevailing in Antitrust Row,” reports that a Florida federal judge granted pharmaceutical manufacturer Patheon Inc.’s request for $18.5 million in attorneys' fees and defense costs related to former joint venture partner Procaps SA's $255 million antitrust suit, which the court said was “especially unpleasant and nasty.”

U.S. Magistrate Judge Jonathan Goodman said now that the Eleventh Circuit has upheld the summary judgment order ending Procaps' suit, Patheon is entitled to a fee award under the Florida Deceptive and Unfair Trade Practices Act (FDUTPA) in the “full-throttle lawsuit” that he noted has generated 1,165 docket entries since it was first filed in December 2012.

In the suit, Procaps alleged that Patheon's acquisition of Banner Pharmacaps Europe BV made the previously agreed-upon Procaps-Patheon collaboration on the development of a softgel capsule for pharmaceutical products a restraint on trade.  But the Eleventh Circuit in January said Procaps couldn't prove any harm that would justify a Sherman Act suit, such as a reduction in output, increase in prices or decrease in quality.

In the order, Judge Goodman ruled that though the FDUTPA claims were essentially “tag-along” claims based on Procaps' claims under the federal Sherman Act — which does not authorize prevailing party fees — the claims were all clearly related and the time Patheon spent defending the federal claims was time spent defending the state law claims.  Judge Goodman pointed to Florida Supreme Court precedent authorizing fees to a prevailing party under FDUTPA unless the non-FDUTPA claims were clearly unrelated to or clearly beyond the scope of the FDUTPA proceeding.  That is not the case in this dispute, he said.

“There is no dispute about the reality of the FDUTPA claim: it was an alternative theory of recovery to the Sherman Act claim, based in large part on the same transaction and facts,” Judge Goodman said.  “The antitrust claim work cannot fairly be described as being 'totally unrelated' to the FDUTPA claim.”  He had choice words for the parties, saying that counsel regularly launched personal attacks and that filings in the court were “routinely riddled with insults, allegations of bad faith and unprofessionalism, and, in general, purple prose.”

Judge Goodman awarded Patheon the full $18,494,846 it had requested, noting that Procaps had not objected to the amount and that Patheon's attorneys had already self-discounted.

Patheon's attorney Michael Klisch said his client appreciated the significant time and effort the district court spent on the case that lasted almost five years.  He said Patheon had invested significant time and money into the case, which required a forensic analysis of Procaps' computer system and “a nearly complete do-over after Procaps changed its antitrust theory years into the case.”

“Given all the circumstances and applicable law, we believed an award of fees and costs was entirely appropriate, and are pleased the court agreed with us,” Klisch said.

The case is Procaps SA v. Patheon Inc., case number 1:12-cv-24356, in the U.S. District Court for the Southern District of Florida.

Federal Circuit: No Right to Jury Trial on Patent Fee Awards

August 11, 2017

A recent NLJ story by Scott Graham, “No Right to Jury Trial on Patent Fee Shifting, Federal Circuit Rules,” reports that there is no Seventh Amendment right to a jury trial on the issue of attorney fee awards in patent cases.  Not even when $12 million is at stake.  So ruled the U.S. Court of Appeals for the Federal Circuit in a notorious pair of cases involving the rights to a scientific breakthrough on Alzheimer's disease research.

The Alzheimer's Institute of America, also known as AIA, argued that the jury that heard its patent validity case should also have decided whether it acted in bad faith.  Instead, U.S. District Judge Timothy Savage of Philadelphia made that finding and socked AIA with a $3.9 million fee award.  U.S. Magistrate Judge Elizabeth Laporte in the Northern District of California followed with a $7.8 million award predicated on Savage's findings.

The Federal Circuit affirmed the fee awards.  “The Seventh Amendment right to a jury trial does not apply to requests for attorney’s fees under Section 285 of the Patent Act,” Judge Todd Hughes wrote in AIA America v. Avid Radiopharmaceuticals.  Savage “did not err by making factual findings not foreclosed by the jury’s verdict.”

The two cases are among many the institute brought against university and pharmaceutical researchers over the last decade.  Some companies settled for millions of dollars, while others fought back.  Avid argued that AIA never owned the patent on a genetic defect known as the Swedish mutation that’s associated with Alzheimer’s disease.  A Philadelphia federal jury agreed that AIA did not have standing to assert the patent.

Savage then ruled that “the evidence at trial amply showed” that AIA's principal, businessman Ronald Sexton, conspired with two scientists to hide their blockbuster Alzheimer’s discovery from their university employers.  At oral arguments in June, Buckley told the Federal Circuit that Sexton had been acting on advice of counsel and that Savage's finding of bad faith could not be squared with the trial evidence.

Hughes wrote that Federal Circuit case law does forbid trial judges from making findings that are inconsistent with issues “necessarily and actually decided by the jury.”  But that wasn't the situation here.  “These decisions do not prevent a court, when deciding equitable issues, from making additional findings not precluded by the jury’s verdict,” Hughes wrote.

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.