February 21, 2024
A recent Law 360 story by David Minsky, “Judge Rejects $5.2.M Atty Fee Bid In Poultry Farm Loan Suit”, reports that a New York federal judge rebuffed attorneys' attempt to collect a nearly $5.2 million fee for representing an affiliate of two billionaire brothers that accused an investment adviser of fraudulently inducing the affiliate to provide a loan for a Russian poultry operation, saying the adviser wasn't improperly defending himself.
In the order, U.S. District Judge Victor Marrero denied an attorney fee motion by Reed Smith LLP lawyers representing Bloomfield Investment Resources Corp., which accused adviser Elliot Daniloff of needlessly stretching out the firm's lawsuit against him over the course of several years before he was ultimately ordered to pay millions in compensatory and punitive damages.
Bloomfield — a British Virgin Islands company and affiliate of billionaire brothers David and Simon Reuben — sued Daniloff in 2017 and a judgment of more than $34 million was entered against him in 2023, a year after a bench trial was held, court records show.
"To prevail on a motion to shift fees, the moving party must provide 'clear evidence' that the losing party's claims were (1) 'entirely without color,' and (2) 'were made in bad faith,'" Judge Marrero said in his order. "The court finds that Bloomfield has not established that Daniloff engaged in the sort of dilatory and vexatious litigation tactics that satisfy the standard for the 'bad faith' exception in this circuit."
In the 2017 case, the plaintiff accused Daniloff of misdirecting $25 million intended as a loan into a bank account opened for the Russian poultry farm and failing to return the money.
Following the judgment, in June 2023, Reed Smith attorney Steve Cooper filed a motion seeking attorney fees from Daniloff. In the accompanying memo, Cooper said Daniloff failed to show credible evidence of his theory, which is that "Bloomfield made an investment in the Synergy Hybrid Fund as an investor and that the $25 million did not represent a loan."
"Daniloff's actions led to prolonged and expensive litigation," Cooper stated in his motion. "He caused the collection, review and/or production of almost 150,000 pages of documents, and the taking or defending of 13 depositions. He made numerous frivolous motions and appealed the dismissals of his first action to the Second Circuit twice."
Opposing the attorney fee motion, Daniloff said that the plaintiff couldn't show that his defense wasn't "colorable" and used for an "improper purpose."
"Efforts to delay proceedings are not sufficient to establish that the litigant is acting with an 'improper purpose' as required for the 'bad faith' exception," Daniloff said in his July opposition filing. "Moreover, any assertion that Mr. Daniloff was defending against Bloomfield's claims to give himself leverage in resolving the dispute would be insufficient to establish that Mr. Daniloff litigated this dispute with an improper purpose."
The court found Daniloff's arguments "legally and factually baseless," according to Judge Marrero, who also noted that the "court found that Daniloff persisted in making baseless arguments without support and in conflict with the clear evidence showing that he (and Bloomfield) always understood the $25 million would be a loan and not an equity investment."
While Judge Marrero acknowledged Bloomfield's arguments that Daniloff convinced the parties to engage in lengthy negotiations that delayed the case and ultimately failed, he added the court wasn't persuaded that these tactics amounted to bad faith dealings.
Judge Marrero cited the "American rule" in which parties pay their own attorney fees, "absent statutory authority or by contract," but recognized that these costs can be shifted in limited circumstances. One deviation from the rule is the "bad faith exception," the judge said, in which the non-prevailing party's actions are conducted "vexatiously, wantonly or for oppressive reasons."
The judge, however, found that Bloomfield hadn't established the required "high degree of specificity" in showing Daniloff litigated with the intent to harass or delay, saying that it has never been held in his circuit that a "frivolous position may be equated with an improper purpose."
"Without such evidence, the court cannot conclude that Daniloff's actions were taken with an improper motive," Judge Marrero said. "Courts in this circuit have consistently declined to award attorneys' fees simply on the basis that the defendant improperly delayed the proceedings, even when the delay was accompanied (or even caused) by meritless legal positions."