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Category: Fee Issues on Appeal

Seventh Circuit Cuts Fee Award in Half

August 18, 2017

A recent NLJ story by Amanda Bronstad, “Fees in Class Action Over Moldy Washing Machines Nearly Halved,” reports that a federal appeals court has slashed plaintiffs' attorney fees by nearly half in a class action settlement over defective washing machines — but the firms could have taken a bigger hit.  A much bigger hit.

The opinion by the U.S. Court of Appeals for the Seventh Circuit reduced the fees in a 2015 settlement from $4.8 million to $2.7 million.  The suit alleged that front-loading washing machines made by Whirlpool Corp. and sold by Sears, Roebuck and Co. from 2004 to 2006 had a defect in their central control units and grew mold inside them.  Sears estimated that the settlement, which resolved just the claims over the control units in Kenmore and Whirlpool brands, was worth about $900,000.

The Seventh Circuit found a federal magistrate judge's reasoning "questionable" when she boosted the award 1.75 times what lawyers charged for their work.  "The judge's reasoning was that the case was unusually complex and had served the public interest and that the attorneys had obtained an especially favorable settlement for the class," wrote Judge Richard Posner.  "The district court, comparing the hourly rates sought by class counsel with the complexity of their work, concluded that for the most part the case wasn't very complex — it was just about whether or not Sears had sold defective washing machines.  This conclusion leaves us puzzled about the court's decision nevertheless to allow a multiplier."

What the Seventh Circuit did not do, however, is find any problem awarding fees greater than the benefits to class members, despite two of its own precedents in 2014 cautioning courts to presume that such fees are unreasonable.  Defense attorneys insisted that the fee award disregarded those precedents — Pearson v. NBTY and Redman v. RadioShack — and that the plaintiffs' attorneys should get no more than $900,000 given that 95 percent of the class won't get anything.

Yet such a presumption, Posner clarified, wasn't "irrebuttable."  He noted the "extensive time and effort that class counsel had devoted to a difficult case against a powerful corporation entitled them to a fee in excess of the benefits of the class."  But three times what class members got?  The attorneys should get what they billed for — "no more, no less," Posner wrote, remanding with directions to award $2.7 million.

Plaintiffs' attorneys, meanwhile, spent much of their appeal brief focused on the Seventh Circuit's 2015 ruling in In re Southwest Airlines Voucher Litigation, which awarded $1.6 million in fees in a coupon settlement.  But Posner's opinion never mentioned that ruling.  Sears and Whirlpool were represented by Timothy Bishop, a partner at Mayer Brown in Chicago.  In an email, both companies praised the Seventh Circuit's decision to reduce "the plaintiffs' lawyers' excessive and unreasonable fee by more than 43 percent."

Steven Schwartz of Chimicles & Tikellis in Haverford, Pennsylvania, did not respond to a request for comment.  His firm sought fees alongside five others, including Carey, Danis & Lowe in St. Louis, San Francisco's Lieff Cabraser Heimann & Bernstein and New York's Seeger Weiss.

The class actions were filed in 2006.  In 2012, the Seventh Circuit certified two classes of customers in a ruling written by Posner that ended up before the U.S. Supreme Court, which remanded the case in light of its ruling in Comcast v. Behrend. Posner reaffirmed the certification ruling in 2013.  Separate claims over mold against were transferred to multidistrict litigation in the Northern District of Ohio, where a federal jury issued a defense verdict in 2014.  In that case, the lawyers got $14.75 million in counsel fees and costs.

After U.S. Magistrate Judge Mary Rowland of the Northern District of Illinois approved the central unit settlement last year, the attorneys sought $6 million in fees.  They claimed their lodestar — the amount they actually billed — was $3.25 million and that they deserved a 1.85 multiplier to account for their efforts in the case.

In a 55-page opinion, Rowland reduced their lodestar to $2.7 million after finding issues with some of their billing records, but multiplied the amount by 1.75 due to the novelty and complexity of the case, the success achieved and the advancement of a public interest.

"It is no exaggeration to say that this protracted nine-year litigation has concerned fees and little else," Bishop wrote in the brief for Sears and Whirlpool appealing her fee award.  "The approach taken by the district court would encourage prolonged litigation to drive up class counsel's hours with no added value to the class."

But it was the defendants, Schwartz wrote in the plaintiffs' response brief, who drove up those hours.  "The only reason why it took a decade of litigation up through the eve of trial to get the cases settled was defendants' refusal to even discuss settlement," he wrote.

The case is In re: Sears, Roebuck and Co Front-Loading Washer Products Liability Litigation, 7th U.S. Circuit Court of Appeals, No. 16-3554.

Judge Trims Hours Billed in Copyright Infringement Action

August 17, 2017

A recent Law 360 story by Sophia Morris, “Judge Reinstates, Then Trims Fees Award to ‘Obstinate’ Attys,” reports that a Florida federal judge ruled that Yellow Pages Photos Inc. was entitled to attorneys’ fees and costs totaling more than $1.4 million in a copyright infringement suit following an Eleventh Circuit ruling in its favor, but revised the amount downward based on the conduct of the company's counsel at Shumaker Loop & Kendrick LLP.

U.S. District Court Judge Richard A. Lazzara was ruling on the fee request following the remand of YPPI’s infringement suit against subcontractor Ziplocal and Yellow Pages Group LLC from the Eleventh Circuit.  He found that while YPPI was the prevailing party and thus entitled to fees and costs, the amount must be reduced given its attorneys' conduct during the litigation.

“Obstructing the rhythm of a case by throwing up roadblocks of schedules too busy to calendar depositions, just for the sake of being disagreeable and obstinate, particularly in view of the multiple attorneys working on the case, does not bode well in finding the number of hours incurred was reasonable or acceptable in any sense of the word,” Judge Lazzara said.

Yellow Pages Photos filed the long-running infringement suit in 2012 over Ziplocal and Yellow Pages Group’s use of copyrighted photos.  In 2014 a federal jury awarded YPPI $123,000 in damages.  Yellow Pages Group appealed and YPPI cross-appealed, and the Eleventh Circuit affirmed the judgment in 2015.  YPPI then appealed the district court’s lowered fee award, and the Eleventh Circuit ruled in January that it was entitled to a revised fee determination given that it had requested $1.4 million in fees from Ziplocal and had been awarded $69,354.76. 

Now, on remand after the January ruling, YPPI requested fees and costs for both the district court action and the appeal process.  But Judge Lazzara said that given the stonewalling behavior of YPPI’s attorneys during the course of the district court proceedings he cannot award fees and costs in the amount requested.

The court found that the lodestar for the district court action should be $1,280,395.57, a 10 percent reduction “representative of the excessive, redundant and otherwise unnecessary number of hours expended,” Judge Lazzara said.  He then reduced this lodestar by another 10 percent to $1,152,356.01, saying that YPPI had requested an excessive amount of damages in what was a simple case.  The damages that were awarded were much lower than what was initially requested and the court found that the fee award should reflect this.

YPPI’s attorneys also made a fee request of $57,419.50 for work expended on the appeal.  The court said that while the hourly rate was reasonable, the amount of hours expended on the appeal was not.  Judge Lazzara said that the fee request was not detailed and it appeared that the attorneys were duplicating each other’s work.  He therefore reduced the fee award to $50,794,50.  “The time of 136 hours seems excessive and unnecessary for researching and briefing the issue of attorneys’ fees and nontaxable costs,” the court said.

Federal Circuit Considers Fee Award in Original Octane Fitness Case

August 14, 2017

A recent NLJ story by Scott Graham, “Federal Circuit Weighs $1.4M Fee Award in the Original ‘Octane Fitness’ Case,” reports that the original Octane Fitness v. Icon Health & Fitness is now before the Federal Circuit.  That was the 2014 case the Supreme Court used to ease the standard for awarding “exceptional case” attorney fees in patent litigation.

The decision definitely made an impression on U.S. District Judge Ann Montgomery of Minnesota.  Back in 2011, she’d brushed aside Octane Fitness LLC’s complaints about its competitor’s unreasonable claim construction and unfair litigation tactics and declined to award fees.  After the Supreme Court decision, she awarded $1.4 million in fees and costs, saying that, in her 22 years as a judge, the case “stands out as a particularly and unusually weak case on the merits.”

The parties were back at the U.S. Court of Appeals for the Federal Circuit.  This time, Morrison & Foerster partner Deanne Maynard argued for Icon Health & Fitness Inc. that, while it might have had a losing case, the company had not acted unreasonably.  “Hard fought, to be sure, but that’s typical in patent cases, especially competitor-on-competitor suits,” Maynard told the judges. “Not extraordinary.  Not rare.  Like many this court sees every day.”

Maynard faced two obstacles: One is that the Supreme Court also has said that the Federal Circuit should generally trust trial judges to make the call on attorney fee awards under Section 285 of the Patent Act.  The second is that one of the three Federal Circuit judges, Todd Hughes, sounded inclined to further lower the standard for awarding fees.

“All those typical patent cases” that Maynard was describing “arise from a regime in which it was incredibly hard to get attorney fees,” Hughes told her.  “So we don’t have a baseline yet for what is the new standard.  So how do we know whether this complies with the new standard or not?”

The case, now styled Icon Health and Fitness v. Octane Fitness, is a battle between two fitness machine companies over the style of an elliptical trainer—including whether Octane’s has a “stroke rail” that “extends from a foot rail to a frame” in the manner described by Icon’s patent.  Octane argues that its elliptical is nothing like this and that Icon executives joked with each other in emails about how the company found this 10-year-old patent gathering dust in its portfolio and asserted it to just mess with smaller competitor Octane.

In her original 2011 opinion, Montgomery called these “stray comments by employees with no demonstrated connection to the lawsuit.”  But following the Supreme Court decision—and additional discovery—she concluded that Icon general counsel Everett Smith probably was the source of the executives’ opinions.

Morrison & Foerster formally joined the case just after Montgomery awarded fees in 2015.  Maynard argued to the Federal Circuit that just this last June, well after the Supreme Court reset the standard, the Federal Circuit threw out a fee award in a case where executives spoke much more brazenly about stomping on their competition.  Maynard didn’t mention it, but two of the three judges on that opinion--Pauline Newman and Alan Lourie—were presiding over her case with Hughes.

“What is a competitor supposed to do?” she asked the judges.  “A competitor in the marketplace not surprisingly often has a large patent portfolio, often monitors what its competitors are doing, and if it sees a new competitor in the marketplace who seems to be copying their invention, sues them.”  “You’re going to overdeter—overdeter—if you award fees on facts like these,” she told the court.

Rudolph Telscher of Harness Dickey has been representing Octane Fitness since the beginning of the case—all the way up to the Supreme Court and back.  He told the Federal Circuit that not only should Octane keep its $1.4 million award, it also should get another $1.5 million for having to litigate the attorney fee issue before Montgomery, the Federal Circuit and the Supreme Court.  “Do we appreciate that award?  We of course do,” he said.  “But we’re still out $1.5 million, which means the net effect is our client has gotten no fee award.”

The Federal Circuit did not sound likely to expand the award.  The judges suggested that, until the Supreme Court changed the rules, it was not unreasonable for Icon to oppose attorney fees.

Whether to affirm the underlying $1.4 million award sounded like the closer issue.  “There does seem to be at least misapprehensions by the district court” about claim construction, Hughes said.  Montgomery’s characterization of Icon’s argument is “not right.  That’s not what they argued,” he told Telscher.

Telscher said Icon should have known better.  Suppose "I was Icon’s management, and somebody said, ‘Yeah, we’ve got this 10-year-old patent.  It doesn’t work.  We’ve never used it.'  And we’re going to say that’s the basis for a claim against Octane, a small startup company who’s taking market share with a completely different product?”  Incredibly, he said, “the red flags didn’t go off.”

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.

Bank Blocked From Billing for In-House Counsel Work

August 10, 2017

A recent Legal Intelligencer story by Lizzy McLellan, “Bank Blocked From Billing for In-House Counsel’s Work,” reports that Enterprise Bank has lost an appellate-level bid to charge counsel fees to a client in foreclosure for work completed by an in-house attorney and paralegal.  That work is not included in the description of legal fees contained in Enterprise's loan documents, the Pennsylvania Superior Court ruled Aug. 8, affirming a trial court decision.  However, the court did not address whether companies generally may bill clients for the work of in-house lawyers and legal staff.

"After careful consideration, we conclude that the language 'hire or pay someone else' is, at best, ambiguous," Judge Geoffrey Moulton wrote in a 10-page opinion.  "Frazier makes a strong case for the proposition that 'someone else' necessarily means someone not then in Enterprise's employ.  Otherwise, the meaning of the term is difficult to discern."

The Frazier family, a limited partnership, executed a business loan, promissory note and mortgage from Enterprise in 2012, the opinion said.  Within the agreement was a provision regarding attorney fees and expenses, which said Frazier would be responsible for all attorney fees, including those used to "hire or pay someone else" to enforce the mortgage agreement.

In January 2014, Enterprise filed a mortgage foreclosure nearly equal in amount to the principal on the three loans.  The foreclosure complaint included a request for reasonably incurred counsel fees.

Frazier filed preliminary objections, arguing that in-house counsel was not included in the attorney fee provision.  Enterprise provided documentation of the hours billed by an in-house lawyer and paralegal and argued that they were clearly counsel fees.  "Enterprise further asserted that it 'hired' in-house counsel 'to collect the debt and in this case, file a mortgage foreclosure' action," the opinion said.

But the Allegheny County Court of Common Pleas sided with Frazier, denying Enterprise's request for counsel fees.  The trial court said any ambiguity in the loan agreements should be construed against Enterprise, since Enterprise drafted the agreements.

The Superior Court agreed on appeal.  However, the court noted, there is a larger issue raised by the dispute on which the court was unable to rule.  "Because we find the contract language ambiguous, and construe it against Enterprise, we need not reach the broader question, briefed by the parties, of whether a lender in Pennsylvania may recover for the work of salaried, in-house counsel," Moulton wrote in a footnote.