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Category: Fee Denial

Judge Rejects $5.2M Fee Request in Poultry Farm Loan Suit

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."

Federal Circuit: More Fees Even With ‘Exceptional’ Ruling is ‘Nightmare’

February 16, 2024

A recent Law 360 story by Andrew Karpan, “Dish’s Bid for More Fees Called ‘Nightmare’ By Fed. Circ. Judge”, reports that a Federal Circuit judge told counsel for Dish Network LLC that to secure more fees after the cable giant defeated a patent case in district court that was found to be "exceptional" to cover the costs of challenging the patent at the patent board would create "an effing nightmare."

Dish had argued to the three-judge panel that it should be able to bill a shell patent company for expenses incurred challenging the patent through an inter partes review at the Patent Trial and Appeal Board after Dish defeated the related patent suit against it.  The patent company, Dragon Intellectual Property LLC, was also appealing the $1.45 million in fees that Dish already won, along with the $1.86 million won by attorneys for Sirius XM Radio Inc. in a different case over the same patent.

But the hearing was dominated by arguments over efforts by Dish's lawyers to score more money out of Dragon IP and potentially its lawyers — taking up over an hour of debate among the panel of judges.

In that endeavor, Dish had cited the 1989 Sullivan v. Hudson ruling from the U.S. Supreme Court, which gives the courts discretion to award fees to lawyers in a Social Security administrative proceeding.  According to the filings, Baker Botts LLP billed Dish for $673,905 in fees from patent board proceedings and wanted that money added to the $1.45 million. Sirius XM was hoping to clock $134,272 in additional fees.

U.S. Circuit Judge Kara Farnandez Stoll told Baker Botts lawyer Lauren Dreyer that she had a "practical" question about this argument.  "The district court is in the best position to determine whether or not something is exceptional or not because they're in the day-to-day running of the case.  That's not so with an IPR," she said. "The district court knows nothing about what happened at the IPR."  U.S. Circuit Judge Kimberly Moore was more wary of the possible effect of Dish's request in a legal climate where "every single patent litigation has a companion IPR now."

This would open up an entirely new avenue for victorious patent lawyers to litigate further, Judge Moore said.  "So, what you're now asking for is every time we're thinking about attorney's fees, anytime an IPR is successful, you're going to have the district court being put in what Judge Stoll was just articulating [is] the very awkward position of trying to evaluate the exceptionality of what was argued and decided, not in his or her forum but in an administrative forum," Judge Moore said. "That sounds like I'm creating an effing nightmare."

In response, Dreyer tried to argue that these motions would not come all the time if Dish succeeded just this once.  "I think [this case] is the exception; it's not the rule, and it only occurs in the rare cases in which there is frivolousness and an unreasonable manner of litigating," she said.  That didn't go down well with Judge Moore.  "With all due respect, every time you guys win, that's what you claim," Judge Moore told her, audibly annoyed at Dreyer's repetition of legalese.

U.S. District Judge Cathy Ann Bencivengo, on the panel by designation, acted to move the lawyers along in talking about "the circumstances in this case" and said there could be some general grounds for "sweeping the IPR" into a fee bid, as it "wasn't a waste of time [since] you didn't lose there."

Judge Bencivengo appeared occasionally mystified at the larger legal effort by Dish to go after Dragon in the first place.  "Basically, you have a hollow victory here if you win because plaintiff Dragon is a shell.  An empty shell. ... You can get zero.  They're judgment proof," she told Dreyer.

In addition to asking for more money, Dreyer said Dish was also hoping to get the appeals court to hold Dragon IP's lawyers liable for paying those fees.  But Dreyer made little headway again.  "All of what you discussed [with Judge Bencivengo] is not in this record.  You attempted to supplement this record with a deposition that would have brought to light all of those points.  They are not before this court, are they?" Judge Moore asked.

Dreyer acknowledged they were not.

"So we can't rely on any of that," the judge told her.

Judge Moore also took issue with how defense-side patent lawyers use "exceptionality" findings in federal courts.  "It feels like in a lot of these exceptional case findings, what really bothers me is that you all come in, and you complain that the district court should have done some sort of redo of all the things it didn't do in order to conclude that the originally asserted positions should have been deemed exceptional," she said.  "You're asking us to adopt a rule in which district court judges are now going to have to evaluate conduct, behavior and an outcome in a proceeding they had no involvement with and determine whether fees should be awarded for that in their forum, which would have evaluated the exact same issues under an entirely different burden of proof."

Judge Denies Attorney Fees for ‘Mooted’ Disclosure Case

February 5, 2024

A recent Law 360 story by Katryna Perera, “Volta Investor Denied Fees For ‘Mooted’ Disclosure Case”, reports that a New York federal judge has declined to award fees to lawyers who represented a Volta Inc. investor who sued the electric vehicle company over allegedly inadequate disclosures related to a potential acquisition, saying the disclosures the company later provided because of the suit didn't give the investing public any new or useful information.  U.S. District Judge Jed S. Rakoff issued an opinion and order denying a request for attorney fees from Wohl & Fruchter LLP, which represents plaintiff David Belcher.

Belcher launched his suit in February 2023, claiming that a preliminary proxy statement Volta issued concerning a potential acquisition by Shell USA Inc. was misleading because it didn't include "specific details" about Shell's relationship with Goldman Sachs and Barclays.  According to the order, Volta had asked the banks for advisory services in connection with the potential sale to Shell.

However, Volta ended up supplying the information Belcher requested in advance of the shareholder vote to approve the sale, so the case became moot. Belcher then moved for attorney fees, arguing that his suit "created a common benefit for Volta shareholders by causing Volta to provide those supplemental disclosures."

But Judge Rakoff disagreed, saying that while there is no doubt that Belcher's suit "played a substantial role in the defendant's decision to take corrective action," Belcher has not identified any false or misleading statements in the preliminary proxy statement that needed correction to begin with.  The judge added that the supplemental disclosures consisted of publicly available information and were, therefore, not material.

Fourth Circuit Denies Coverage of Defense Fees in Fraud Case

January 4, 2024

A recent Law 360 story by Emily Enfinger, “Md. Atty Not Owed Defense Coverage, 4th Circ. Finds”, reports that a Maryland attorney is not entitled to defense costs under his law firm's insurance policy after he was indicted on allegations that he fraudulently seized control of $13 million in Somalian government funds, the Fourth Circuit has ruled, affirming in full a district court's summary judgment.

In a published opinion, the panel agreed that Axis Surplus Insurance Co., Endurance American Specialty Insurance Co. and Prosight Syndicate 1110 at Lloyds do not owe coverage to Jeremy Schulman in connection with the underlying fraud and money laundering charges.  Schulman, who is based in Bethesda, Maryland, has asserted that a part of the policy saying it covers "demands" should give him coverage after prosecutors said they were coming for his property.

But the indictment does not fall within several definitions of the word "demand," the panel said, noting that the forfeiture allegation in the indictment did not require the attorney to turn over any money or property to the government.  Instead, at most, the forfeiture allegation is "a notice that there will be a demand in the future," the panel said.  "The ordinary meaning of 'demand' does not encompass a notice that, on the condition a triggering event occurs, something will be demanded in the future," the panel continued.

Schulman has also argued that a letter the insurers sent him in June 2017 was a binding contract in which the insurers promised to cover fees and costs related to the indictment, and that he relied on that promise "to his detriment," the panel's opinion read.  The panel was unconvinced that the letter triggered coverage, saying that "the insurers never made a clear and definite promise to cover the expenses over which Schulman has sued."  Rather, the letter limits coverage for a subpoena, the panel said, not the indictment.

Federal prosecutors said Schulman assisted the Somali government in unfreezing nearly $13 million in assets through fraud and money laundering, taking $3.3 million for his law firm and hundreds of thousands of dollars for himself in the process.  Schulman is accused of forging documents and lying to banks about his authority to obtain the Somali government's money.

Prosecutors charged Schulman in December 2020 with 11 criminal counts, including conspiracy to commit mail fraud and money laundering, wire and bank fraud, and money laundering.  After being indicted, Schulman said he racked up about $2 million in criminal defense costs.

Judge Denies Attorney Fees Over Lack of Billing Record

January 3, 2024

A recent Law 360 story by Matthew Santoni, “Pa. Judge Slices Investor’s Requested Attorney Fees”, reports that a Pennsylvania federal judge upheld an arbitrator's $258,000 judgment against an invention-marketing company, but declined to award the nearly $50,000 in additional attorney fees requested by the prevailing Texas-based inventor because his lawyers hadn't submitted billing records for the amount, which was nearly two-thirds of the fees they claimed in total.

U.S. District Judge Marilyn J. Horan reaffirmed an earlier order denying Davison Design & Development's bid to duck an arbitrator's award in favor of inventor Mario Scorza, but the day after a brief but contentious video hearing, the judge said Scorza's lawyers hadn't shown evidence supporting their request for fees and costs beyond the $17,837.83 they had billed through June.

"In the two months since this court scheduled this matter for hearing, Mr. Scorza's counsel provided no additional billing or time records beyond his conclusory reference to additional requested fees during his testimony at the January 2, 2024 hearing," Judge Horan wrote in her opinion.  "Such is not sufficient for Mr. Scorza to meet his burden for any additional fee award beyond $17,837.83."  Judge Horan entered a final judgment against Davison that included the original $258,000 award and arbitrator's fees, pre- and post-judgment interest, and the $17,837.83 she said was supported by the record.

Pittsburgh-based Davison had filed a lawsuit against Scorza in April, seeking to overturn the arbitration decision in his favor over the company's allegedly bungled refinement and patenting of his idea for a travel scale.  Davison said the arbitrator had improperly awarded Scorza attorney fees under the American Inventor's Protection Act and the Texas Regulation of Invention Development Services Act, even though Scorza had only sought those fees under the Pennsylvania Unfair Trade Practices and Consumer Protection Act.

But Scorza had countered that the Texas law had been acknowledged as applicable in his contracts with Davison, and in a November opinion denying Davison's request to toss out the attorney fees portion of the award, Judge Horan agreed.

"Davison's arguments, regarding vacatur of attorney fees, center on essentially a distinction without a difference.  Whether the arbitrator cited the UPTCPL or other statute, Davison had notice that Mr. Scorza was seeking attorneys' fees under his claims," she wrote in November. "Mr. Scorza's claims always contained an attorneys' fees component.  This was not a surprise to the litigants, and Davison has not argued that it would have disputed the attorneys' fees award differently through any defense under the AIPA and/or TIDSA.  Therefore, Davison has no basis to vacate or modify the award of attorneys' fees to Mr. Scorza."

Judge Horan held a video hearing to address Scorza's motion to confirm the arbitration award and to tack on additional attorney fees he had incurred while opposing Davison's bid to trim the award.  But the hearing started off on a contentious note, with Davison attorney Justin T. Barron noting that Scorza's attorneys had filed their exhibits for the hearing at 11 p.m. on New Year's Day, just 10 hours before the hearing.

Stacey Barnes of Kearney McWilliams & Davis, representing Scorza, noted that most of the exhibits had already been part of the record in the lawsuit and arbitration, and Judge Horan steered the discussion to an affidavit Barnes had signed regarding the alleged reasonableness of the fee request.

When arguing for his fee request — which he said had grown to an estimated $49,619.73 through the fight over fees in the underlying arbitration — Barnes was reined in repeatedly by the judge and by Barron's objections when he assailed Davison for allegedly delaying and litigating disputes in the hope that they would become too expensive for jilted inventors to fight.  "There is a playbook that has been run on Mr. Scorza," Barnes said. "They have concocted a procedural obstacle course for aspiring inventors."

Barron raised several objections to the relevance of such attacks, especially when Barnes claimed part of the reason for Davison's fighting the award was the hope that Scorza, who is in his 80s, might die before it was resolved. Judge Horan also admonished Barnes to focus on the reasoning for the post-arbitration fees.  "I'm inclined to grant fees, the question is, how much?" she said. "Let's get to the meat of it."

Barnes was sworn in to testify to his rates and his co-counsel's rates, and Barron questioned him on why his co-counsel had not filed their CVs as part of the record.  He also asked why Scorza's attorneys had not filed copies of their invoices with the court after June, even though they were asking for nearly $32,000 more since then.  That lack of additional information was what Judge Horan cited when she trimmed the requested fee award.

"The court will award only those fees which were necessary and reasonable and supported by the record evidence in this case," she wrote in her opinion.  Scorza's attorneys told Law360 they were disappointed by the reduced fee award and would discuss future steps with their client, but were pleased that the underlying arbitration award was upheld.