A recent Law 360 story by Britain Eakin, “Virtu Can’t Get $3.2M in Fees for ‘First Class’ Attys,” reports that a magistrate judge has recommended that a unit of high-frequency trading firm Virtu Financial get only a fraction of the $3.2 million in attorney fees it sought for its win against a former employee, saying that $344,000 was a reasonable fee award.
KCG Holdings Inc., which prevailed in its trade secret misappropriation case in March, retained attorneys from Baker McKenzie and Seyfarth Shaw LLP and argued that the rates it was seeking were in line with — and in some cases lower than — comparable firms. But U.S. Magistrate Judge Gabriel W. Gorenstein said in a report and recommendation that the rates KCG proposed were out of step with precedent requiring the court to consider rates in relation to attorneys of "average skill and ordinary competence."
The judge said KCG had not even tried to argue that its proposed rates were in line with that criteria. "Certainly, in its choice of attorneys, a party may understandably choose to undertake the equivalent of flying first class," Judge Gorenstein said. "But when it comes time to shift 'reasonable' fees to another party under New Jersey law, it may only collect the equivalent of an economy-class ticket."
In March, U.S. District Judge Alison J. Nathan found that KCG's former employee, Rohit Khandekar, misappropriated trade secrets by reviewing and copying trading codes developed by other quantitative strategists to his personal files before leaving for KCG's competitor, Two Sigma Securities. KCG had sued Khandekar in 2017 after he left for Two Sigma. In June, KCG moved for fees and costs, arguing that it should get $3.2 million in attorney fees with costs on top of that for a total of nearly $3.6 million.
In opposing the motion, Khandekar had argued the demand should be rejected in its entirety for being "so outrageously excessive and unreasonable that it could not possibly have been made in good faith." But Judge Gorenstein rejected that argument, saying the case he relied on to support that argument involved a party that made repeated misrepresentations to the court. "Here, no such circumstances are present, and Khandekar's attack consists merely of the usual elements of an opposition to a fee application: an attack on the reasonableness of the hours sought and of the hourly rates," the judge's report said.
However, Judge Gorestein found that the amount of hours KCG billed for was "vastly excessive," as was the number of attorneys on the case. That included 13 partners, 22 associates, seven contract attorneys, and 10 other members consisting of paralegals, counsel and a summer associate, which the judge said "undoubtedly caused inefficiency and contributed to the vast number of hours expended."
The judge went on to say that, while courts often reduce billing hours because of overstaffing, "this case stands alone." "It is exceedingly rare, if not unprecedented, to see an application for fees in a single-plaintiff/single defendant case with the number of attorneys involved here," the report said. Judge Gorenstein therefore reduced the number of billable hours by 70% and then cut the total fees in half to account for the financial disparities between the parties, noting that the full fee award would bankrupt Khandekar and would only marginally improve KCG's financial position.