A recent Law 360 story by Rose Krebs, “X Corp. Accused of ‘Shirking’ Its Obligations in Legal Fee Row”, reports that three former top Twitter executives continue to urge the Delaware Chancery Court to order the Elon Musk-owned social media giant, now called X Corp., to reimburse them for at least $1.1 million in legal costs, accusing the company of "perpetually making excuses" for not meeting its obligations.  In a brief, former Twitter CEO Parag Agrawal, former Chief Legal Officer Vijaya Gadde and former Chief Financial Officer Ned Segal told the court that the company is "gaining a well-earned reputation for shirking its commitments."

They took aim at a cross-motion for summary judgment and accompanying brief X Corp. filed last month, after Agrawal, Gadde and Segal had already sought to have Chancellor Kathaleen St. J. McCormick summarily order the company to pay legal fees they have incurred in connection with Twitter-focused lawsuits and regulatory inquiries.

The three assert that, in their summary judgment bid, they established "beyond any doubt that Twitter has breached its advancement obligations."  "From the beginning of this dispute, plaintiffs have operated by the book — making timely demands for advancement, providing undertakings, and submitting good faith certifications from counsel attesting to the reasonableness of plaintiffs' attorneys' fees," their brief said.  "Plaintiffs have done everything prescribed by Delaware law to obtain advancement from Twitter."

They accuse the company of causing months of delays and "perpetually making excuses for its failure to meet its advancement obligations."  "Although Twitter would like to pretend it is a party that dutifully pays its contractual obligations as they come due, it is in fact perpetually delinquent and is gaining a well-earned reputation for shirking its commitments," they contend.

In a filing last month, they said the social media giant had advanced them roughly $575,000 for their legal costs, but is still "wrongfully" withholding about $1.1 million owed, along with roughly $270,000 in interest and "fees-on-fees" for having to litigate the Chancery suit.  The three sued the social media giant in Chancery Court in April, saying they incurred significant expenses after becoming involved in several legal proceedings because of their former roles as Twitter executives.

They contend that per company bylaws and indemnification agreements, X Corp., as Twitter's successor, is obligated to advance their legal expenses.  Musk fired the three when he took ownership and control of the business in October 2022.  Indemnification agreements covering them, however, remain in effect for proceedings related to their former position as officers, the complaint said.  In a filing last month, the three argued: "Put simply, the world's richest person does not pay his bills."

But, its own filing, X Corp. has called into question the reasonableness of fees related to Gadde's appearance before the House Committee on Oversight and Reform during the committee's investigation into the influence of social media on U.S. elections.  In its own summary judgment filing last month, X Corp. called Gadde's request for fees excessive.

"Unlike many advancement actions, here, X Corp. does not challenge Gadde's entitlement to advancement of reasonable expenses — the company does not dispute that her testimony was required by reason of Gadde's role as former CLO of Twitter," the filing said. "Rather, the company here is challenging only the reasonableness of the fees for which Gadde seeks advancement with respect to the Congressional Inquiry."

X Corp. said Gadde is asking the company to advance "over $1.1 million" for fees incurred by her counsel, Sidley Austin LLP, "in connection with testifying for a single day."  That amount is "nearly 1,100%" what was incurred by two other former Twitter executives who also testified at the same hearing and were "similarly situated witnesses," X Corp. contended.

"The extreme delta between Gadde's legal fees and those of not one, but two separately represented, similarly situated, former Twitter executives who engaged similarly reputable law firms, is on its own sufficiently shocking to require that the reasonableness of Gadde's fees be thoroughly addressed now," the company argues.

X Corp. asked the court to "reduce any advancement award related to Gadde's representation in the congressional inquiry from $1,153,540.81 to $106,203.28 because Gadde failed to prove that all the fees and expenses were reasonably incurred."

But, ina filing, Gadde, Agrawal and Segal fired back.  "Twitter's challenge to these fees is particularly troubling given that Twitter's owner, Elon Musk, contributed to the exposure and complexity of the oversight inquiry when he publicly and repeatedly focused on Gadde and personally toured Capitol Hill to incite Republican lawmakers leading the oversight inquiry," their filing said.  They argued that "the record demonstrates that Gadde's fees incurred in the oversight inquiry are reasonable."

The three criticized the company for venting "invective at Gadde's counsel," including asserting that it engaged in "over-lawyering" and "extensive duplication of effort."  Gadde’s attorneys spent many hours prepping her for the committee’s questions, using five partners with hourly rates from $1,300 to $1,825, two associates charging more than $1,200 an hour and non-lawyer “policy adviser” Tracey LaTurner, who billed at $665 an hour.

"Aside from its invective, the only basis for Twitter's cross-motion is a false comparison between Gadde's attorneys' fees and the attorneys' fees of two other witnesses who testified in the same oversight inquiry," they said.

A recent Law 360 story by Celeste Bott, “BIPA Defendants Must Show Bad Faith For Fees, Judge Says”, reports that an Illinois federal judge has rejected Christian Dior's argument that it should be the first defendant awarded attorney fees under Illinois' biometric privacy law, finding that a threshold showing of a plaintiff acting in bad faith would be required for such an award and that the luxury retailer couldn't meet that burden.

U.S. District Judge Elaine Bucklo in February dismissed the Illinois Biometric Information Privacy Act suit brought by lead plaintiff Delma Warmack-Stillwell, holding that an exemption under BIPA for data captured "from a patient in a health care setting" freed Christian Dior Inc. from the suit over its online tool for users to virtually try on sunglasses.

In May, Dior argued that Judge Bucklo should award it attorney fees and costs, saying BIPA's plain language makes clear that a "prevailing party" may recover its attorney fees and that the Illinois Supreme Court has held that prevailing parties include defendants.  But Judge Bucklo noted that the only way to enforce compliance with BIPA is through the statute's private right of action, and forcing plaintiffs who don't act in bad faith to foot the bill for a defendant's attorney fees would contradict that intent.

"Exposing plaintiffs bringing BIPA suits in good faith, even if ultimately unsuccessful, to attorneys' fees would unduly chill the sole enforcement mechanism for a law the legislature clearly intended to protect critical privacy interests and would defy BIPA's remedial purpose," the judge said.

Dior failed to establish Warmack-Stillwell had acted in bad faith by bringing her complaint, Judge Bucklo said, despite its arguments that she should have known better given two other similar lawsuits against other companies that were dismissed by Illinois federal judges under the same health care exemption — one before Warmack-Stillwell's case was filed and one tossed about a week after hers was filed.

Those district court rulings were not binding, Judge Bucklo said.  "Neither the Seventh Circuit nor the Illinois Supreme Court has expressed guidance on the matter, so it was not unreasonable for plaintiff to pursue her case," she said.  Judge Bucklo said it was "unnecessary" to decide whether BIPA allowed defendants to win attorney fees at all, because the law would still require a showing of bad faith, which Dior failed to meet.

A recent Law 360 article by David Ross, “Atty Fee Reversal May Complicate Claims Made Settlement”, reports on the ramification of the Lowery v. Rapsody International decision.  This article was posted with permission.  The article reads:

A decision prefaced by "will likely make the average person shake her head in disbelief" is unlikely to end well for a party.  That was the outcome when an initially sought $6 million in legal fees was later awarded at $1.7 million by a district court.  In Lowery v. Rhapsody International Inc., the U.S. Court of Appeals for the Ninth Circuit reversed the fee award June 7 because class members obtained less than $53,000 in benefits.

The rationale for that decision could spell trouble for those seeking approval of claims-made class action settlements that do not have sufficient financial benefits actually received by class members or meaningful injunctive or non-monetary relief.

Background

In Lowery, the Ninth Circuit panel addressed a claims-made class settlement.  For a little background, class settlements typically involve a claims-made or common fund structure.  A claims-made settlement involves claims submissions to determine the amount of benefits that a defendant will pay.  The ultimate amount is unknown, although, as in Lowery, caps may be in place to prevent a runaway payout amount.

In comparison, the defendant in a common fund settlement agrees to the total amount it will pay for the class settlement.  In other words, the overall amount is predetermined.  The common fund often includes settlement benefits, plaintiffs' attorney fee awards, service awards for the class representatives, and claims administration and notice costs.  In some settlements, hybrid structures are crafted that may include claims-made and common fund elements.

The Lowery case involved a claims-made class settlement in a music copyright class action. Rhapsody agreed to pay class members — copyright holders — for music played on its streaming service.  However, an earlier settlement between Rhapsody and the National Music Publishers Association to resolve the same copyright issues resulted in 98% of the class members waiving their right to participate in the settlement. This gutted the class.

Despite agreeing to pay up to $20 million for claims, Rhapsody wound up paying only $52,841.05 in claims.  Rhapsody also did not have to change its licensing practices, as Congress passed the Music Modernization Act in 2018, which allowed digital music providers to obtain blanket licenses.  On appeal, the panel found that the $1.7 million fee award to the plaintiffs' counsel, "more than thirty times larger than the amount paid to class members," was not reasonable.

The panel held that: courts must consider the actual or realistically anticipated benefit to the class­ — not the maximum or hypothetical amount — in assessing the value of a class action settlement.  On remand, the U.S. District Court for the Northern District of California was directed to "disregard the theoretical $20 million cap" and instead "start with" the actual amount the class claimed.

The panel noted that "rule is especially important when the class redemption rate is low" and another "approach would allow parties to concoct a high phantom settlement cap to justify excessive fees, even though class members receive nothing close to that amount."  The panel added that "the district court should consider cross-checking its lodestar calculation to ensure that it is reasonably proportional to the benefit provided to the class."  If the cross-check showed that the fee award exceeded 25% of the class benefits, that disparity might "suggest that the fee amount is unreasonable."

The panel added that except for extraordinary cases, a fee award should not exceed the value provided to the class, and remarked that it did not matter that "attorneys may have devoted hundreds or even thousands of hours to a case."

Potential Ramifications of the Lowry Decision

The takeaways from this decision will likely emanate far beyond copyright cases.  Class action plaintiffs attorneys may refuse to consider claims-made settlements in the Ninth Circuit, and insist on common fund settlements.  This position could extend to state court cases on the West Coast for fear that these courts might find the Ninth Circuit's decision persuasive.  Even for common fund settlements, the amount that class members actually will receive must be considered.

While common fund settlements predetermine the amount that the defendant will pay, the amount actually paid in benefits to class members might still depend on the take rate and the types of benefits available.  Common fund settlements are thus not entirely inoculated from the potential application of the panel's rationale in the Lowery decision.  A court still could consider the amount of attorney fees and the amount of the common fund actually allocable to class member benefits.

Thus, regardless of whether a common fund or claims-made settlement in the Ninth Circuit is pursued, the likely take rate and associated monetary benefit for class members should be carefully evaluated.

Looking Ahead in the Ninth Circuit

For any settlement, the impact of non-monetary and injunctive relief, which the Ninth Circuit recognized was not at issue in Lowery, should be considered. The panel noted a contrast to civil rights cases, where attorney fees awards did not need to be strictly proportional to monetary damages.  In civil rights cases, significant non-monetary and injunctive relief to the plaintiffs can be provided, but for copyright cases, attorney fees must consider the proportion between the award and the class benefits to confirm the award is reasonable.

That said, the panel recognized that in copyright cases such as infringement where substantial non-monetary relief or a meaningful benefit to society is encompassed, a fee award may exceed the monetary benefit provided to the class.  The Lowery decision does not have to be a death knell for claims-made settlements in the Ninth Circuit.  There is no reason to conclude that a well-structured claims-made settlement that provides significant settlement benefits to class members can no longer obtain court approval.  To the extent that material injunctive and non-monetary benefits are included, even more reason for optimism exists.

It also should be noted that the Lowery decision does not mean that all focus in a class settlement should be on boosting the amount paid to class members.  The key focus in Lowery was the amount of the plaintiffs' attorney fees in comparison to the amount of class member benefits.  So, maybe­ — just maybe­ — more reasonable attorney fees amounts can increasingly become part of class action settlements, whether structured as a claims-made or common fund settlement.

David Ross is a partner at Wilson Elser Moskowitz Edelman & Dicker LLP.

A recent Law 360 by Ganesh Setty, “11th Circ. Says No Attorney Fees for Cos. In Tossed Insurance Suit,” reports that a home builder and contractor accused of faulty stucco work can't seek attorney fees from their insurance company after a Florida federal court found the insurer lacked standing to litigate whether it had a duty to defend the companies, the Eleventh Circuit ruled.  Under the circuit's 1984 decision in Certain British Underwriters at Lloyds of London v. Jet Charter Serv. Inc. , statutory attorney fees are an element of damages and are therefore part of the merits of a case itself, U.S. Circuit Judge Elizabeth L. Branch wrote in the court's unpublished opinion.

Thus, when U.S. District Judge Timothy J. Corrigan tossed Southern-Owners Insurance Co.'s suit because it failed to meet the federal $75,000 amount-in-controversy threshold, the court lacked the subject-matter jurisdiction to hear any ensuing dispute over attorney fees, Judge Branch found. U.S. Circuit Judge Gerald Bard Tjoflat penned a separate concurrence, while U.S. Circuit Judge Britt C. Grant issued a dissent.

According to the decision, the dispute began in August 2013, when the home builder, Maronda Homes Inc. of Florida, sold a house to a couple who later complained of various construction defects related to the home's stucco installation. Maronda had hired JROD Plastering LLC to perform the installation, which held a commercial general liability policy with Southern-Owners that listed Maronda as an additional insured.

The insurer subsequently sued Maronda and JROD in Florida federal court seeking a declaration it had no coverage obligations over the alleged construction defects.  But Judge Corrigan dismissed the suit for lack of subject-matter jurisdiction, finding that the insurer failed to meet the $75,000 amount-in-controversy threshold for federal litigation.

Maronda and JROD sought attorney fees under the now-repealed Florida statute § 627.428, which allowed a court to award attorney fees to insureds who prevailed in coverage litigation against their insurer.  The district court further dismissed those motions, citing in part the Jet Charter decision.  In that case, the Eleventh Circuit ruled that "attorney's fees recovera[bl]e by statute are to be regarded as 'costs' only when made so by statute," and are otherwise "treated as an element of damages," according to excerpts included in Friday's decision.

Though the Eleventh Circuit in Prime Insurance Syndicate Inc. v. Soil Tech Distributors Inc. ruled the opposite way in 2008, finding that attorney fees are "collateral issues" within the court's purview even if the underlying case isn't, that decision was not published, Judge Branch noted.  And even if it were, circuit precedent holds that in the case of conflicting published panel decisions, the oldest one controls, she said.

"All in all, while some Florida courts have reached a different result than we did in Jet Charter, these decisions are too varied to constitute a definitive change in law," Judge Branch added in a footnote.  "As such, we decline to exercise our discretionary power to rewrite our circuit's precedent which means that we are bound to follow Jet Charter."

A recent Law.com story by Alaina Lancaster, “9^th Circ. Finds Epic Failed to Prove Antitrust Claims Against Apple, Reverses Attorney Fee Denial,” reports that Apple Inc. is entitled to attorney fees in the antitrust litigation brought by game developer Epic Games Inc. after an appeals court ruling held that the game developer failed to prove the tech giant was a monopolist.  An 87-page majority opinion from the U.S. Court of Appeals for the Ninth Circuit affirmed a district court judgment that the Fortnite maker failed to prove its state and federal antitrust claims against Apple after a May 2021 bench trial. 

The ruling reverses the part of an order from U.S. District Judge Yvonne Gonzalez Rogers of the Northern District of California, who is overseeing the litigation, that denied Apple attorney fees, and remands the issue back to the district court for further proceedings.  Still, Apple was not able to avoid liability under California’s Unfair Competition Law.

The dispute stems from Epic’s August 2020 complaints claiming that Apple and Google LLC have monopolized their app distribution stores and in-app payment processing markets.  Epic filed the lawsuits after the tech giants removed Fortnite from their app stores for adding an in-app purchasing feature in violation of developer licensing agreements.  Apple has argued that it designed a “walled garden,” an integrated and secure ecosystem, to protect consumer trust, security and privacy.

The majority panel found that Gonzalez Rogers erred as a matter of law in defining the relevant antitrust market.  To establish a single-brand aftermarket, the court majority said that plaintiffs must show the following:

1. The challenged aftermarket restrictions are “not generally known” when consumers make their foremarket purchase;
2. “Significant” information costs prevent accurate life-cycle pricing;
3. “Significant” monetary or nonmonetary switching costs exist;
4. General market-definition principles regarding cross-elasticity of demand do not undermine the proposed single-brand market.

Epic and the district court interpreted court precedent to rely on a different four-part test.  The majority opinion also found that the district court erred in holding that a non-negotiated contract of adhesion, such as the developer licensing agreement, falls outside of the scope of Section 1 of the Sherman Act.

In a footnote, the court said that it had “no opinion” on what portion of Apple’s attorney fees incurred in this litigation can be fairly attributed to Epic’s breach of the developer licensing agreement.

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