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Dentons Wins Fee Award Despite Litigation Finance Agreement

July 1, 2019 | Posted in : Ethics & Professional Responsibility, Expenses / Costs, Fee Agreements, Fee Award, Fee Entitlement, Fee Shifting, Hourly Rates / Hourly Billing, Prevailing Party Issues

A recent NLJ story by Mike Scarcella, “Dentons Wins $7.4M in Fees, Costs Despite Litigation Finance Agreement,” reports that the global law firm Dentons has won more than $7.4 million in legal fees, expenses and costs for its successful work in a patent suit against the U.S. government, despite having a third-party litigation financing arrangement that Justice Department lawyers said should not have allowed the attorneys to receive any compensation at all. 

Dentons successfully sued the government over claims that certain U.S. combat ships violated patents that belonged to the firm’s client, FastShip LLC.  The law firm, as part of a deal to proceed with the case in the first place, received an initial payment of $600,000 from a Virginia-based entity called IPco. LLC.  FastShip ultimately was awarded $12.36 million in damages.

A Washington-based U.S. Court of Federal Claims judge last week rejected the Justice Department’s argument that FastShip’s legal team, led by Dentons, should be denied attorney fees because of its arrangement with a company that had partially funded the litigation.  Judge Charles Lettow awarded $6.2 million in fees and related expenses, and more than $1.2 million in costs.

Litigation finance arrangements are on the rise, and judges ever more are grappling with novel issues about evidence, legal fees and, more generally, transparency.  In his ruling, Lettow described litigation finance as a “controversial,” and evolving, area of the law.  The Federal Claims court, the judge noted, “has not yet adopted any rules regarding litigation financing agreements.”

Much of the fee litigation in the Federal Claims court, including the Dentons fee petition itself, and the Justice Department’s opposition, remains sealed.  Lettow’s ruling described the general contours of the dispute, and he included various hourly rates of Dentons partners and associates who worked on the case for FastShip.

The two highest billers for FastShip were Mark Hogge in Washington, chairman of Dentons’ legacy patent litigation practice, and Rajesh Noronha, the firm’s senior managing associate in Washington.  Hogge, the attorney of record for FastShip, charged an average rate of $835, and Noronha charged an average rate of $669, Lettow reported.  The firm received an initial payment of $600,000 from the third-party IPCo, which was first registered in 2012.

“Litigation financing agreements help bridge this divide by providing the attorney of record a source of guaranteed fees for their work, while granting the financer a share of the proceeds if the case is successful,” Lettow wrote in his ruling, dated June 27.  “Here, IPCo. acted as that bridge, covering the gap between claim and litigation, allowing FastShip to successfully pursue their infringement case.  Preventing recovery based on such an agreement would be anathema to the underlying purpose of fee-shifting statutes.”

The Justice Department disputed that FastShip was a real party in interest based on the litigation financing agreement between Dentons and IPCo.  The dispute was further complicated by the fact a lawyer for FastShip, Donald Stout of Washington’s Fitch Even Tabin & Flannery, was a “‘joint member and manager’ of IPCo.”  Virginia state corporation records show Stout is the registered agent of the company.

“[E]ven if this court had adopted a local rule mandating the disclosure of litigation financing agreements, the court is, and has been, aware of IPCo.’s role in the litigation.  As the involvement of Mr. Stout makes evident, at no point was the court in the dark regarding his status,” Lettow said in his ruling.

The judge said “nothing about Mr. Stout’s role as a counsel of record and litigation financer suggests that a conflict exists.  These two roles are independent of one another and there is no evidence in the record that Mr. Stout acted improperly.”

At one point in his ruling, Lettow examined how litigation-funding practices could be abused, much like the patent system itself.  He said he was satisfied “that no double payment or windfall will go to Dentons for any award of attorneys’ fees and costs.”

“[T]he possibility of abuse does not mean the entire system should be discarded,” Lettow said.  “Instead, courts have focused on the disclosure of such agreements to encourage transparency and ensure a shadow broker is not using litigation as a form of harassment or for multiple bites at the same apple.  Disclosure also enables judges to appropriately evaluate potential recusal due to conflicts of interest.”