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Category: Fee Shifting

$11M in Attorney Fees Sought in IP Action

November 17, 2017

A recent Law 360 story by Dorothy Atkins, “VMware Seeks $11M Atty Fees for Beating Phoenix IP Suit,” reports that VMware Inc. urged a California federal judge to award it $11.2 million in attorneys’ fees and litigation costs after a jury cleared it of Phoenix Technologies Ltd.’s claims it infringed Phoenix’s software copyright and breached their licensing agreement, arguing that the case was “ill founded from the outset.”

Michael Jacobs of Morrison & Foerster LLP argued that staff at Phoenix knew that its suit was premised on an "implausible legal contention," because they waited 15 years to sue over their licensing contract, and that's highlighted by the fact that they shifted their legal theory dramatically after the close of fact discovery.  “This case was ill-founded from the outset,” Jacobs said.  “To go back and read the complaint is to remind ourselves how odd it was to receive it on its face.”

Phoenix’s bid for attorneys' fees and costs comes after a jury cleared VMware of all allegations in June.  Phoenix had sought $110 million in damages and alleged in its March 2015 complaint that VMware broke its contract with Phoenix and infringed copyrights by limiting its use of software that controls basic input and output operations, known as BIOS.

Jacobs argued that Phoenix had evidence of weakness of their case since the beginning, but failed to do its due diligence to ensure its claims were viable.  The company unfairly forced VMware to spend millions to defend itself against the suit, he said.  “This case cries out for an award of attorneys’ fees lest there be a lot more cases like it,” he said.

But Phoenix’s attorney, Michael Attanasio of Cooley LLP, argued that nothing about this case would make it objectively unreasonable to pursue.  Also, Attanasio said, VMware can't cite a single case in which claims were deemed objectively unreasonable, despite having survived summary judgment and going to trial.  Even the Supreme Court has observed that sometimes cases go to trial, and the plaintiffs lose, but that doesn’t turn it into fee shifting award, Attanasio said.

U.S. District Judge Haywood S. Gilliam Jr. said he would take the arguments under submission, along with Phoenix's motion for judgment as a matter of law and request for new trial.  In that motion, Phoenix claimed that the jury was prejudiced by VMware’s defense argument, which the court shouldn’t have allowed VMware to present.  But during the hearing, Judge Gilliam suggested that the appeals court might be a better place for that particular challenge to be resolved.

The case is Phoenix Technologies Ltd. v. VMware Inc., case number 4:15-cv-01414, in the U.S. District Court for the Northern District of California.

Jones Day Seeks Fees from EEOC After “Baseless Suit”

November 13, 2017

A recent NLJ story by Erin Mulvaney, “Jones Day Seeks $446K in Fees From EEOC After ‘Baseless Suit’ Goes Nowhere” reports that Jones Day lawyers are seeking hundreds of thousands in legal fees from the U.S. Equal Employment Opportunity Commission, saying federal regulators unfairly targeted CVS Pharmacy Inc. for alleged employment abuses that no judge sustained.  Eric Dreiband, the lead partner for CVS in the litigation, is the Trump administration's pick to lead the U.S. Justice Department's Civil Rights Division.

The EEOC sued CVS in 2014 over a severance agreement the agency said limited the rights of employees to file complaints.  The EEOC called the severance agreement “overly broad” and argued it was part of a CVS “pattern or practice of resistance” to restrict the civil rights of the company’s employees.  The agency lost its case, EEOC v. CVS Pharmacy, in the U.S. District Court for the Northern District of Illinois and in its appeal in the U.S. Court of Appeals for the Seventh Circuit.  The appeals court concluded the agency too broadly interpreted its enforcement powers.

The dispute is back in the Seventh Circuit as Jones Day--led by partner Eric Dreiband—seeks attorney fees for the work the firm did for CVS.  The district court said CVS was entitled to legal fees.  Dreiband and the Jones Day team want $446,339 for 250 hours of work.

The dispute provides a glimpse at the billing practices at Jones Day.  In court filings, Dreiband requested legal fees for himself and Jones Day associates.  Dreiband identified his hourly rate at $560.  Ninth-year associate Jacob Roth, a former clerk to the late Justice Antonin Scalia, billed at $475 per hour; Nikki McArthur at $275 per hour; and staff attorney Adria Villar at $175 per hour.

“These rates are significantly less than what Jones Day actually billed, and was paid, for the firm’s work on this matter,” Dreiband said in a declaration.  “These rates are also lower than what Jones Day typically bills for these timekeepers on other similar matters.”

Dreiband argued in the request for legal fees that the EEOC “concocted what it admits to be a novel interpretation of Title VII that would give the agency vast power” to challenge employment practices that it doesn’t like.  He argued the EEOC exceeded its authority in filing the suit—refusing any conciliation with CVS—and issuing a press release announcing the case.

“The EEOC instead rushed to file a baseless lawsuit, and blasted CVS with an inflammatory press release falsely accusing the company of interfering with Title VII rights,” Dreiband told the appeals court.  EEOC lawyers, responding to the claims, said the agency had reason to believe it would prevail and that the fees awarded were an abuse of direction.

“Although the EEOC did not prevail, this theory—which was consistent with the statutory language and this court’s precedents—was entirely plausible, and the EEOC had no reason to believe with any certainty that it would not succeed,” EEOC lawyers told the Seventh Circuit.

John Darrah, the federal trial judge who said Jones Day was entitled to fees, concluded the EEOC had violated its own internal regulations in the case against CVS.  “The EEOC’s own regulations require the agency to use informal methods of eliminating an unlawful employment practice where it has reasonable cause to believe that such a practice has occurred or is occurring,” Darrah wrote in his ruling.

PA Justices Consider “Loser Pays” for Workers Comp Cases

October 18, 2017

A recent Legal Intelligencer story by Max Mitchell, “Justices Urged to Avoid Chilling Effect of Lower Court ‘Loser-Pays’ Ruling in Comp Case” reports that, if the state Supreme Court upholds a decision that workers’ compensation lawyers can be ordered to pay the employer’s attorney fees for unreasonable contest, if the employer prevails on appeal, there will be a chilling effect on smaller cases, a lawyer representing a claimant told the justices.  Attorney David Landay of Pittsburgh, who is representing the claimant in County of Allegheny v. Workers’ Compensation Appeal Board (Parker), argued that the Commonwealth Court’s decision in his client’s case was against the statutory scheme of the Workers’ Compensation Act.

“Judges will think twice before awarding attorneys fees if they think they may be taken away,” Landay said.  He gave the example of a dispute over $2,500 in medical bills.  Even if it is absolutely clear that the claimant was entitled to benefits, he said he would not be able to take the case, because, if he were unable to recover unreasonable contest fees, he would only be able to recover $5,000.  “I can’t afford to take that case,” Landay said.

The dispute stems from a December decision from the Commonwealth Court, which remanded claimant Harold Parker’s workers’ compensation case with instructions to order Parker’s lawyer to refund $14,750 in unreasonable contest fees to Parker’s employer, Allegheny County.

That decision had been based on the Commonwealth Court case Barrett v. WCAB (Sunoco), which held that “where litigation costs are awarded and are paid by the employer as a result of denial of a stay and the award of costs is later reversed on appeal, the employer is entitled to an order requiring the claimant’s counsel to repay the erroneously awarded costs.”  Although Barrett involved non-attorney fee litigation costs, the majority said the reasoning in Barrett applied to Parker’s case.

Landay, however, told the justices that Barrett was based on a plurality decision in a case that did not involve contingency fees.  “Once you take those out, then the opinion [in Parker] collapses of its own weight,” Landay said.  Landay contended the way unreasonable contest fees are paid is outlined in the Workers’ Compensation Act, and the act does not allow for disgorgement of the fees, but rather the fees should be paid out of the supersedeas fund.

Bradley R. Andreen of O’Brien, Rulis & Bochicchio, who represented Allegheny County, said the Workers’ Compensation Act was not meant to provide a windfall for plaintiffs’ attorneys.  “The claimant didn’t need to get more fees when we ultimately prevailed,” Andreen said.

Parker was receiving total disability benefits for a 1993 work-related injury when the county filed a petition in 2007 seeking to suspend his benefits.  A workers’ compensation judge granted the suspension petition in 2008, given that Parker had failed to follow through in good faith with a job referral that was within his physical limitations.  Parker was 80 years old at the time.

In 2009, however, the WCAB reversed and held that Parker was entitled to unreasonable contest attorney fees.  The employer, Allegheny County, successfully appealed that ruling in the Commonwealth Court, which also held that Parker was not entitled to unreasonable contest fees since he was ultimately not the prevailing party.

In the wake of the 2012 Commonwealth Court ruling, the county sought reimbursement from the supersedeas fund for more than $100,000 in compensation it paid Parker as well as $14,750 in unreasonable contest fees.  The Bureau of Workers’ Compensation approved reimbursement for the compensation paid, but not for the unreasonable contest fees.  So the county filed a petition seeking an order that would require Parker’s lawyer to pay the refund.

Andreen said the process ensures claimants do not have their benefits reduced due to a mistake the employer made, and any decision by the justices in Parker would not affect the claimant’s attorneys’ ability to recover fees.

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.

Tiffany Asks for $5.6 M in Attorney Fees in Trademark Case

October 4, 2017

A recent Law 360 story, “Tiffany, Costco Trade Blows After $21M TM Award” reports that Tiffany and Costco are trading post-trial blows following a ruling that the retailer must pay the jeweler more than $21 million for using “Tiffany” on diamond engagement rings, with Tiffany demanding millions more in attorneys' fees and Costco pushing to overturn the loss.

The new wrangling comes after more than four years of litigation over the Tiffany trademark. Costco argued it had merely used it as shorthand for “Tiffany setting” — a generic term for a style of ring — but U.S. District Judge Laura Taylor Swain ruled in favor if the jeweler in 2015.

With Costco already on the hook for $21 million, Tiffany asked earlier this month for $5.6 million in attorneys' fees, saying Costco’s aggressive defense made the big fee-shifting reasonable.  “Throughout the case Costco revisited and relitigated issues previously decided against it, and generally engaged in a scorched earth strategy that forced Tiffany — and the court — to undertake all manner of extra work,” the company wrote.

Costco, meanwhile, asked Judge Swain last week to change her ruling, particularly her findings that the company was liable for counterfeiting, a more serious infraction that is usually reserved for situations where “entire products have been copied stitch-for-stitch.”  “Counterfeiting is the ‘hard core’ or ‘first degree’ of trademark infringement,” the retailer wrote.  “The evidence here shows no such ‘stitch-for-stitch’ mimicry.”

The rings at issue in the case, Costco told Judge Swain, were sold in unbranded packaging that didn’t look anything like Tiffany boxes and were not identified as Tiffany rings on the store receipt.  They were also stamped with a manufacturer’s mark, not Tiffany’s.  The retailer also asked the judge to toss out a finding that it infringed the trademarks willfully, saying that finding, too, was “clearly unsupported.”

This month’s filings were merely a prelude to an appeal to the Second Circuit, a move Costco has already repeatedly promised.  The retailer tried to get an immediate appeal following the 2015 ruling, but was refused at the time.  The two companies instead held a damages trial, leading to an award of $19 million; interest and other fees later increased the award to $21 million.

The case is Tiffany & Co. v. Costco Wholesale Corp., case number 1:13-cv-01041, in the U.S. District Court for the Southern District of New York.