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Category: Fees as Sanctions / Bad Faith

US Court of Claims Hits Government with Attorney Fees as Sanctions

March 19, 2019

A recent Law 360 story by Daniel Siegal, “Gov’t Owes $4.4M in Fees After Losing $200K Patent Row,” reports that a U.S. Court of Federal Claims judge on tacked on nearly $4.4 million in fees and costs to a since-deceased inventor's $200,000 win on claims that the federal government infringed her patent for a metal treatment technology, finding that fees were warranted because government researchers stole the inventor's idea.  In a 30-page opinion, Federal Claims Judge Charles F. Lettow partially granted the fee request filed by Hitkansut LLC and Acceledyne Technologies Ltd. LLC, two companies owned by late inventor Donna Walker.  Judge Lettow said that under the Equal Access to Justice Act, Hitkansut had to prove that the government's opposition to its suit was not "substantially justified" to be awarded fees — and that the company had done so, through the conduct of the Oak Ridge National Laboratory researchers that did the infringing.

Judge Lettow said the government researchers did not just happen to develop a metal treatment technology and then find that it happened to infringe Hitkansut's patent, but directly took the patent pending technology Hitkansut showed them and "took sole credit for this process, publishing papers and submitting patent applications" without giving Hitkansut any credit, funding or contracts.  Judge Lettow also rejected the government's argument that it was inherently unreasonable to award this amount of fees in a case in which the plaintiff won a $200,000 judgment, and that the fee award should be capped at that amount plus interest.

The judge said the "significant" fee award was justified after the lengthy, hard-fought case, and noted, "Hitkansut’s claim, however, was vigorously contested by the government, involved highly technical subject matter, spanned six years and proceeded through a lengthy appeal.  Hitkansut also faced an opponent with vast resources whose calculus regarding settlement and the value of precedent differs from that of a private litigant."  The judge said although the government may think "it is unreasonable to spend millions to obtain a judgment of $200,000," precedent uniformly says otherwise, and added in a footnote that the government itself "likely spent far more than $200,000 to defend this case."

The judge didn't grant the full amount of fees and costs requested by Hitkansut — $4.51 million — instead making partial reductions in several fee and costs requests, ultimately awarding a total of $4.38 million.  That included roughly $3.1 million in attorneys' fees, $823,197 in expert fees and $434,327 in other expenses and costs.

Hitkansut attorney John Artz of Dickinson Wright PLLC told Law360 that Walker, the inventor and metallurgist behind Hitkansut, was inspired to create a new method for relaxing stressed metal when her son shipped off as a sailor on a U.S. Navy submarine, and then had to see the government take her idea and deny her any credit.  "I feel like the government felt like it could just take the invention, which it did, without there being any repercussions," Artz said.

Hitkansut applied for the patent in summer 2003 and, according to court documents, Walker met a few months later with researchers at Oak Ridge.  The laboratory, which receives about 80 percent of its funding from the U.S. Department of Energy, pursues research that involves metal processing, among other things.

After signing a nondisclosure agreement with the lab, Walker disclosed her as of then unpublished patent application to its researchers, who later filed multiple patent applications related to its technique for using magnetic fields and heat to relax stressed metal, according to court documents.  Hitkansut filed a lawsuit in May 2012, alleging patent infringement and, after several years of litigation, trial began in late May 2016.  In February 2017, Judge Lettow ruled in Hitkansut's favor, finding that Walker's patent was valid and had been infringed by Oak Ridge.

The $200,000 that Hitkansut was awarded represented an "upfront" fee that both sides agreed would have been part of a hypothetical licensing negotiation.  Judge Lettow rejected Hitkansut's assertion that it was entitled to an additional $4.5 million and $5.6 million in reasonable royalties, because the $4.5 million the lab received based on the infringed technology was all research funding, not the proceeds of commercialization.

The case is Hitkansut v. U.S., case number 12-303C, in the U.S. Court of Federal Claims.

Article: Fresh Takes on Seeking Costs and Fees Under Rule 45

February 22, 2019

A recent Pepper Hamilton blog post article by Donna Fisher, Matthew Hamilton, and Sandra Hamilton, “Fresh Takes on Seeking Costs and Fees Under Rule 45,” reports on fee-shifting incurred in responding to a Federal Rules of Civil Procedure 45 subpoena.  This article was posted with permission.  The article reads:

Recent case law reveals that courts vary widely in their approaches to shifting the costs and fees incurred in responding to a Federal Rule of Civil Procedure 45 subpoena.  Some courts view shifting costs and fees as mandatory in situations where a nonparty is forced to bear “significant” costs.  Others may shift costs and fees only to the extent those costs are “unreasonable,” which is measured by (1) the nonparty’s size and economics, despite its lack of connection to the dispute, (2) defining “reasonable costs” so narrowly that the nonparty bears substantial costs or (3) eliminating attorneys’ fees from the cost-shifting calculation.  The relief a nonparty may be awarded may depend on factors that are not specifically identified in Rule 45 but that are nonetheless included in the court’s concept of fairness.  As the cases discussed below demonstrate, nonparties responding to Rule 45 discovery requests should consider the following best practices:

Know and understand the applicable jurisdiction’s rules pertaining to Rule 45’s protections. 

Be able to demonstrate that the non-party has attempted to respond to Rule 45 discovery in the most efficient manner available.

If possible, demonstrate that review for compliance with regulations or attorney-client privilege is consistent with any applicable protective order or local rule and, therefore, not just for the non-party’s benefit. 

In order to increase the likelihood of recovering costs of any motion practice, attempt to cooperate with the requesting party and demonstrate a willingness to resolve or mitigate the costs and the dispute.

The cases discussed below evaluate motions for costs and fees in two broad categories: (1) those incurred when litigating the scope of the subpoena itself and (2) those incurred in compliance.

Costs and Fees Incurred Litigating the Scope of the Subpoena Itself

The district court in In re Aggrenox Antitrust Litigation considered the motion of a nonparty, Gyma Laboratories of America, to recover $72,778.20 in costs and fees incurred in response to a Rule 45 subpoena from the direct purchaser plaintiffs.  Gyma objected to the requests as overbroad and asserted that production would be unduly burdensome.  At the hearing on cross-motions to compel and to shift costs and fees, the court expressed concern that Gyma had not made a record establishing the alleged difficulties in production, but directed that Gyma would be eligible for reimbursement of reasonable costs incurred.

In reviewing Gyma’s subsequent motion for costs and fees, the court reasoned that Rule 45 makes cost-shifting “mandatory in all instances in which a non-party incurs significant expense from compliance with a subpoena,” but that it did not require the requesting party to bear the entire cost of compliance.  Further, the court held that only “reasonable” costs are compensable under Rule 45 and that the moving party bears the burden of proof.  The court found that Gyma had not established that a reasonable client would use its “expensive” New York counsel to handle the subpoena, and further that costs and fees incurred prior to the date it provided an estimate of costs to the plaintiffs and the court were not fairly chargeable.

Moreover, the court found that many of the costs and fees were incurred in connection with Gyma’s efforts to resist compliance with the subpoena, which the court found was a unilateral “decision to litigate the subpoena zealously.”  Finding that Gyma was “notably intransigent and dilatory in its response,” and considering the admonition of the U.S. Court of Appeals for the Second Circuit, that courts should “not endorse scorched earth tactics” or “hardball litigation strategy,” the district court denied Gyma’s motion for fees in bringing the motion, and awarded only $20,000 in reasonable costs and fees for compliance with the subpoena.

The court in Valcor Engineering Corp. v. Parker Hannifin Corp. considered the motion of non-party MEDAL, to shift the entire cost of production pursuant to a subpoena, $476,000, to the requesting party.  The court found that the costs and fees were objectively unreasonable, and that much of the cost resulted from MEDAL’s tactical decision to aggressively challenge every aspect of the subpoena, which led to two separate motions to compel.  Moreover, the court found that MEDAL demonstrated little interest in minimizing expenses or preventing further motion practice.  For example, after the court granted the first motion to compel, MEDAL withheld nearly 90 percent of the documents identified by search terms as non-responsive, without providing any explanation.  The court also found that MEDAL’s aggressive tactics tended to demonstrate that it was not a truly disinterested non-party, and that it had been intimately involved in the acts giving rise to the litigation.  Finding that MEDAL’s motion came “close to wielding the shield of Rule 45 as a sword,” the court denied its motion for cost-shifting.

By contrast, the court in Linglong Americas Inc. v. Horizon Tire Inc. granted, in full, a similar request by non-party GCR Tire & Service for costs and fees associated with a Rule 45 subpoena served by Horizon.  GCR objected to the scope of the subpoena, and its counsel spent several months negotiating with Horizon’s counsel to narrow the request.  GCR moved to recover its costs and fees, and Horizon objected to allocation of fees incurred in narrowing the scope of the subpoena.  Reviewing Rule 45 case law, including Aggrenox, the court reasoned that it was required to protect the non-party from significant, reasonable expenses incurred in compliance.  The court found that narrowing the subpoena took several months of work by GCR’s attorneys and that the charges were reasonable, particularly since GCR had already paid them.  The court further found that expenses incurred in litigating the fee dispute were reasonable and incurred in compliance with the subpoena.  Accordingly, the court awarded the full $24,567 sought for responding to the subpoena and another $15,338 in fees for filing the fee dispute.

Costs and Fees Incurred in Collection, Processing and Review

In Sands Harbor Marina Corp. v. Wells Fargo Insurance Services of Oregon, the plaintiffs alleged that EVMC Real Estate Consultants, Inc. and others conspiring with EVMC fraudulently induced the plaintiffs to pay advance loan commitment fees when, in fact, no financing was available.  Wells Fargo, the employer of one of the defendants, served a subpoena on Dogali Law Group, a nonparty law firm that had represented EVMC in connection with the loan transactions at issue.  Dogali withheld multiple documents on the basis of attorney-client privilege.  Several years later, the court ruled that a defendant law firm could not withhold documents on the basis of attorney-client privilege because no surviving entity had standing to invoke the privilege on EVMC’s behalf.  Wells Fargo then renewed and expanded its earlier subpoena to Dogali, seeking the withheld documents.  When Dogali argued that an electronic production would be time-consuming, Wells Fargo proposed to use its own vendors to reduce time and costs.  After unsuccessful negotiations about the payment of costs and fees for the production, the court ordered production of the previously withheld privileged documents, as well as all documents responsive to the expanded subpoena.  Dogali later filed a motion for costs and fees in the amount of $39,709.

Weighing the mandate of Rule 45, the court held that Dogali was entitled to an award of fees.  While the court generally agreed that the legal services rates charged were reasonable, it found that the legal time spent responding to the second subpoena and renewed subpoena included time for tasks that were unreasonable, such as time spent researching whether Dogali had standing to assert the attorney-client privilege, reviewing the documents for privilege, creating privilege logs for documents reviewed previously, and researching privilege and waiver issues.  In addition, the court held that time spent communicating with former partners, preparing file memoranda, and conferring with Wells Fargo’s counsel about costs and production was not reasonable.

Finally, the court looked at the attorney time spent researching and preparing the motion for costs as well as the paralegal time spent reviewing documents for production.  The court denied Dogali’s request for the costs of drafting and reviewing the application as unnecessary and excessive.  As to time billed for the paralegal and cost of production, the court noted Wells Fargo’s offer to allow Dogali to utilize its vendor and determined that “rather than explore a more efficient and economical approach for the production, [Dogali] opted to have [its] paralegal print each email individually and convert it into a pdf…[Wells Fargo] should not be required to bear the cost of [Dogali’s] unilateral decision to utilize a more time-consuming approach.”  After carving out costs and fees determined to be unreasonable, the court awarded Dogali fees and costs in the amount of $10,537.33.

In Nitsch v. Dreamworks Animation SKG Inc., the court determined that attorneys’ fees and costs associated with protecting the confidentiality of affected non-parties were reasonable and therefore compensable.  Non-party Croner Company, a consulting company that conducted annual compensation benchmarking, moved for reimbursement of costs incurred in responding to the plaintiffs’ subpoena, which sought survey data that Croner obtained from companies in the animation and visual effects industry over several years.  Before Croner responded to the subpoena, its counsel conferred with plaintiffs’ counsel, advised that it would seek reimbursement of costs, and provided an initial estimate of those costs.

Because all surveys Croner conducted were subject to confidentiality provisions, Croner notified affected clients about the subpoena and devised a form of production to produce the information for the plaintiffs but preserve the anonymity of the survey participants.  The process was more time-consuming than expected, and Croner sought costs, including outside attorneys’ fees, in the amount of $67,787.55.  The plaintiffs objected on the basis that the request was unreasonable, arguing that Croner had produced only 16 documents and that the requested sum was grossly over-inflated and unreasonable.

Citing Rule 45(d)(2)(B)(ii)’s requirement that a court must protect a person who is neither a party nor a party’s officer from “significant expense resulting from compliance,” the court stated that the “shifting of significant expenses is mandatory, but the analysis is not mechanical; neither the Federal Rules nor the Ninth Circuit has defined ‘significant expenses.’”  The court then discussed whether costs tied to Croner’s confidentiality concerns were compensable, as “resulting from compliance” with a subpoena.

The court noted that reimbursable fees include those incurred in connection with legal hurdles or impediments to production, such as ensuring that production does not violate federal law or foreign legal impediments, but reimbursable fees do not include fees incurred for services for the non-party’s sole benefit and peace of mind.  The plaintiffs argued that Croner’s efforts to protect client confidentiality were purely business interests that inured solely to Croner’s benefit and that the protective order was sufficient to address Croner’s confidentiality issues.  The court disagreed, finding that the efforts to address confidentiality issues were reasonable and compensable.

Significantly, the court held that Croner’s efforts were consistent with the protective order entered into by the parties, stating that: Croner’s efforts to protect client confidentiality were not made to be obstreperous, but were the result of compliance with the subpoena.  Indeed, if any of the parties in this case were asked to produce a non-party’s confidential information, the stipulated protective order requires them to do what Croner did.

In Steward Health Care System LLC v. Blue Cross & Blue Shield of Rhode Island, however, the court reached the opposite conclusion when the non-party, Nemzoff & Company LLC, requested reimbursement for costs and fees associated with complying with a subpoena from Blue Cross, which included a review for relevancy and privilege.  Nemzoff initially refused to comply due to the costs involved, resulting in a court order compelling compliance and a warning that Nemzoff should minimize expense as it may bear the cost.  The court explained that only “reasonable expenses” incurred — and not all expenses — may be shifted.

The court held that attorneys’ fees have traditionally been awarded as sanctions in the most egregious circumstances or when the requested fees were for work that benefited only the requesting party.  Since it was not presented with any argument for sanctions, the court found that Nemzoff’s use of its own attorneys to review the documents for relevancy, confidentiality and privilege matters was only for Nemzoff’s benefit, and conferred an unwanted benefit upon Blue Cross.  Nemzoff’s attorneys were protecting its own interests.  As such, the court denied Nemzoff’s request.

While cost-shifting remains within the discretion of the court, courts have consistently been more likely to award costs and fees when a non-party has worked in good faith to narrow the scope of a subpoena and responded in an efficient fashion.  To the contrary, when a non-party attempts to obstruct the discovery process, courts have refused to shift costs and fees.  As demonstrated by the case law, the potential for cost-shifting must necessarily turn on the particular facts and circumstances of each case.

Donna Fisher is a member of the health sciences department at Pepper Hamilton LLP.  Matthew Hamilton is a member of the health sciences department at and partner at the firm.  Sandra Adams is a discovery attorney at the firm.  For a full list of end notes, visit https://www.pepperlaw.com/publications/fresh-takes-on-seeking-costs-and-fees-under-rule-45-2019-02-13/

Federal Circuit Denies Request to Rehear Attorney Fee Ruling in IP Matter

January 10, 2019

A recent Law 360 story by Christopher Cole, “Fed. Circ. Denies Rembrandt Bid to Rehear Atty Fee Ruling,” reports that the Federal Circuit has denied Rembrandt Technologies LP's request for rehearing in its bid to escape paying a massive sum in attorneys’ fees for alleged misconduct while pursuing intellectual property claims in multidistrict litigation against several cable companies.  The circuit said that there would be no rehearing from either the full bench or the original three-judge panel, which had upheld a district court ruling ordering Rembrandt to pay the cable companies' legal fees but had struck a $51 million fee award. 

The ruling dashes an effort by Rembrandt to convince the appeals judges that the earlier decision drew conclusions the lower court never reached about alleged misconduct during the patent enforcement actions, including improper payment of witnesses and document spoliation.  “Upon consideration … the petition for panel rehearing is denied,” the court said in a non-precedential ruling in which the judges offered no further comment.  “The petition for rehearing en banc is denied.”

Rembrandt had sought to reverse the July decision by a circuit panel affirming a Delaware federal judge’s ruling that the firm litigated a long-running patent dispute with multiple cable providers in an “unreasonable manner,” partly by paying witnesses based on the contingency of winning the case.  The firm also either engaged in or failed to stop spoliation, the federal judge found.  The patent actions that led to the dispute over attorneys’ fees stretch back more than 10 years and roped in dozens of cable providers, equipment makers and broadcast networks that Rembrandt accused of infringing several patents, most of which covered cable modem technology.

In August 2015, U.S. District Judge Gregory M. Sleet fount that the long-running multidistrict litigation, involving allegations of infringement of broadcasting and cable transmission patents, was exceptional and ordered Rembrandt to pay attorneys’ fees and costs.

While the Federal Circuit panel agreed with the trial court’s characterization of Rembrandt’s conduct as “exceptional” in justifying a fee award, the appeals judges in the July ruling reversed a $51 million award — equal to almost all the cable companies’ fees — saying the district judge did not explain why that amount was warranted, sending the fee determination back to the judge.  But Rembrandt argued in court papers filed in September that the panel only upheld that the conduct was “exceptional” based on findings that it believed the judge “could have” made to justify such an award but did not actually make.

The case is In Re: Rembrandt Technologies LP Patent Litigation, case number 17-1784, in the U.S. Court of Appeals for the Federal Circuit.

Seventh Circuit: EEOC Should Not Be Sanction with Attorney Fees in CVS Win

November 15, 2018

A recent Law 360 story by Emma Cueto, “7th Circ. Again Rejects CVS’ Atty Fee Win Against EEOC,” reports that a Seventh Circuit panel has preserved its rejection of an attorneys' fee award in favor of CVS Pharmacy Inc. against the U.S. Equal Employment Opportunity Commission in a suit over the company’s severance agreements, saying that using a novel legal theory that was ultimately shot down did not make the suit frivolous.

Despite arguments that the decision would extend fee fights, the panel reiterated that the district court made an error in awarding $307,000 in attorneys' fees to CVS.  The panel said that even though the EEOC did not prevail in its argument that the regulatory language allowed it to file the suit without going through an initial conciliation process, the commission has a “legal hook on which to hang its case,” and that it should not be sanctioned for bringing the suit.

“[The district court] reasoned that the EEOC should have realized even before filing the suit that EEOC regulations required initial conciliation before it could proceed with an enforcement action,” the decision said.  “But that was not at all clear at the time the EEOC acted.”

The dispute between CVS and the EEOC stems from an employee agreement that the agency claimed was meant to confuse employees and to have a chilling effect on employees' rights to lodge discrimination claims with the agency.  The agency sued over the agreement in February 2014.  The district court granted CVS summary judgment in September 2014, finding that the EEOC hadn't met its obligations to conciliate the dispute before suing and therefore wasn't authorized to bring the action in court.  Another Seventh Circuit panel affirmed the dismissal in 2015, and a full Seventh Circuit declined to hear the case.

On remand, the trial court awarded CVS $307,902 in attorneys' fees, finding that the EEOC should have known before suing that its regulations required initial conciliation before it could proceed with an enforcement action.  In June, a new Seventh Circuit panel threw out the attorneys' fees, saying it took more than a loss on the merits to justify awarding the fees and that the district court's decision "impermissibly rested on hindsight,” a phrase it used again in its decision.

The panel was asked to revisit the case in July, when attorneys with Jones Day argued that the court used an improper standard and that the decision would unleash a wave of prolonged fee fights.  The EEOC argued in favor of the panel’s original decision, saying it was in keeping with past case law.  In its amended decision, the panel ruled that it had been correct to use a more permissive standard instead of reviewing the district court ruling only for an abuse of discretion, explaining that the lower court had made a legal error, meaning the abuse of discretion standard was not the correct one to use.

It then said that the question as to whether the EEOC should have to pay attorneys' fees rested on whether its legal theory — which relied on a novel interpretation of the unique wording in a subsection of Title VII of the Civil Rights Act of 1964 — was “far enough afield” as to be unreasonable.  The panel noted that there was a difference in the wording of the subsection the EEOC highlighted and no clear precedent that shut down its theory.  In addition, it added, CVS by its own admission spent more than 800 hours defending against the suit and specifically told the district court the questions required a deep understanding of Title VII.

The case is the U.S. Equal Employment Opportunity Commission v. CVS Pharmacy Inc., case number 17-1828, in the U.S. Court of Appeals for the Seventh Circuit.

Judge Levies $260K in Fees Against Company That Fought Arbitration Award

September 27, 2018

A recent BNA story by Greg Land, “Judge Levies $260K in Fees Against Company That Fought Arbitration Award,” reports that a federal judge awarded more than $260,000 in legal fees to a Georgia company that had already won nearly $900,000 after an Israeli business partner lost an arbitration battle and a subsequent court challenge to that decision.  The earlier award itself included nearly $235,000 in fees for OA Development Inc. and its lawyers, Simon Bloom and Troy Covington of what is now the Bloom Parham firm.         

The order issued Aug. 23 by Judge Eleanor Ross of the U.S. District Court for the Northern District of Georgia gave the Israeli company, Bamberger-Rosenheim, 30 days to pay $261,000 in fees to OAD.  Bloom said the order was a victory for the arbitration process and that the challenge should never have been filed.

“I have said from the very beginning that Bamberger’s strategy of re-litigating and incessantly appealing a final arbitration award, confirmed by the U.S. district court, flies in the face of the essence of alternative dispute resolution,” Bloom said via email.  “The jurisprudence on arbitration is designed to pay heightened deference to arbitrators faithfully executing their job,” he said.  “What is the point of choosing a forum like the [International Court of Arbitration] if the two year process to get to a supposed ‘final award’ is anything but,” Bloom said.

Bamberger is represented by Greg Hecht and Jon Jordan of Hecht Walker.  In an email, Jordan said they respect Ross, but do not agree with her ruling.  “In regard to the appeal itself, our client wanted this jurisdictional issue to go to the U.S. Supreme Court in relation to forum selection clauses in international commercial contracts,” Jordan said.

In their view, the arbitration forum selection portion of the underlying agreement “specified that the forum for OAD’s claims in arbitration should be in Israel, our client’s home country.”  “There was a conflict in circuits on this exact forum selection issue, and Profimex hoped the U.S. Supreme Court would take up this issue to clarify the dispute,” he said.

A Bamberger subsidiary, Profimex, had partnered with OAD several years ago on several development projects, but in 2014 the Israeli company filed a breach of contract complaint against Norcross-based OAD over the division of proceeds from the sale of one of the properties.  OAD counterclaimed, charging Profimex with defamation for telling investors it was dishonest and circulating emails decrying OAD as “crooks in Atlanta,” among other things.  

As per their contract, the case was sent to mediation in Georgia as the venue of the nonfiling party, and both parties were awarded damages.  But Profimex filed a lawsuit to void the award against it, arguing that their 2008 contract mandated any dispute be arbitrated in the challenged company’s chosen venue and that OED’s counterclaims should have been arbitrated in Tel Aviv instead of Atlanta.

In 2016, Ross sided with OED, confirming the arbitrator’s award and ordering Profimex to pay $469,697 in general damages; $187,879 in punitive damages and $234,848 in attorney fees.  The U.S. Court of Appeals for the Eleventh Circuit upheld Ross’ order last year, and the U.S. Supreme Court declined to hear Profimex’s appeal.  OED filed for fees related to the appeals litigation, and Ross’ recent order granting them makes clear that they are not a sanction.