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Category: Fee Entitlement / Recoverability

Federal Circuit Doubtful of Second Attorney Fee Request in IP Case

June 17, 2021

A recent Law 360 story by Christopher Cole, “Fed. Circ. Doubtful of Ex-Worker’s 2nd Atty Fee Bid in IP Case,” reports that Federal Circuit judges seemed skeptical of a manufacturer's ex-employee returning to the court seeking attorney fees incurred in a spat over control of a machine patent that ended in a voluntary dismissal that made no mention of fee payment.  Larry Butterfield has appealed to the circuit a second time in his quest to recover some $200,000 in fees after battling patent, breach-of-contract and trade secret misappropriation claims in Oregon federal court from his former employer Keith Manufacturing Co.

But it didn't take long in oral arguments for U.S. Circuit Judge Todd M. Hughes to question Butterfield's contention that an Oregon federal judge abused his direction by denying the fee bid a second time on Federal Circuit remand.  The lower court judge found in his second ruling that Butterfield was not in fact a "prevailing party" entitled to recover attorney fees, as he had previously ruled.  "Wasn't it well within his discretion to [reconsider] his prior order?"  Judge Hughes asked a Butterfield lawyer.  "What's the legal basis that would prevent him from reconsidering the case after we vacated his order?"  "I don't understand your procedural objections here at all," he added.  "That try-again doesn't mean that he is precluded from reconsidering the prevailing party status."

Butterfield's attorney, Shawn Kolitch of Kolitch Romano LLP, noted that the Federal Circuit's remand order was aimed squarely at the judge's purported overreliance on the U.S. Supreme Court's 2017 Microsoft Corp. v. Baker decision, in which the justices rejected the notion that the voluntary dismissal of an individual's claims with prejudice amounted to a final decision that could be appealed.  The Federal Circuit found in April 2020 that Microsoft wasn't applicable to the Keith suit.  Kolitch maintained that on remand, the judge again went too far, this time by using a procedural rule to reconsider his client's "prevailing party" status, without a required motion from Keith to do so.

The new appeals court scrap is the latest in a suit that Keith lodged in 2015 accusing former employee Butterfield of improperly obtaining a patent by filing an application based on inventions he made during his employment at Keith.  The patent details a headboard used as part of a machine to clear asphalt from a truck.  After Butterfield sent Keith a covenant not to sue on the patent, both sides filed a joint stipulation to dismiss the case with prejudice without a court order, according to the panel opinion.

The stipulation did not mention fees, and Butterfield filed a motion for attorney fees shortly thereafter, according to the opinion.  But U.S. District Judge Michael H. Simon denied the bid in 2017 after determining that the stipulation was not an appealable order under the Microsoft ruling, prompting the first appeal at the Federal Circuit.  Keith's suit has long since been dropped, with a stipulation of voluntary dismissal with prejudice.  But the two sides disagree whether that means Butterfield is the "prevailing party" in the suit.

A key legal question with the case back in the Federal Circuit is whether Butterfield obtained prevailing party status under Oregon law when the parties reached a stipulation of dismissal with prejudice.  Kolitch told the three-judge panel that under Oregon rules of civil procedure, a dismissed party is the prevailing party.  "That is standard when dismissed voluntarily," he said.  "There were no circumstances in this case indicating otherwise."

He also argued that even though Oregon state courts have a "procedural requirement" to enter a judgment document in cases of voluntary dismissal, that does not apply to federal courts because of the Erie doctrine, which says that if state and federal procedures conflict, district courts must follow the federal rules as long as they follow statute and are constitutional.

An attorney for Keith, Bruce Kaser of Vantage Law PLLC, who noted that Butterfield is trying repeatedly to overturn the federal court, said the Oregon rule requiring judgment to be entered to confer prevailing party status "is a substantive requirement" that Butterfield has not met.  Kaser said the appellant "doesn't have any authority" for the positions he has been taking in the effort to recover fees.  If the panel takes Butterfield's side, it would represent a major decision requiring "new topics and continuing education classes for both accountants and lawyers," Kaser said.

Eleventh Circuit Upholds Fee Award in Chinese Drywall MDL

June 10, 2021

A recent Law 360 story by Carolina Bolado, “11th Circ. Upholds Fee Award in Chinese Drywall MDL,” reports that the Eleventh Circuit ruled that court-appointed class counsel in the defective Chinese drywall multidistrict litigation could receive 45% of the total fees paid to attorneys who negotiated settlements for 497 Florida plaintiffs because their work on the common case helped lead to the individual recoveries.  The appeals court said U.S. District Judge Marcia G. Cooke did not abuse her discretion when she awarded class counsel $5.8 million of the more than $40 million paid by Taishan Gypsum Co. Ltd. to end claims over shoddy drywall imported from China.

The class counsel includes firms Colson Hicks Eidson, Lieff Cabraser Heimann & Bernstein LLP, Morgan & Morgan, Herman Herman & Katz LLC and Seeger Weiss LLP.  The Eleventh Circuit said that although the attorneys for the 497 plaintiffs had worked hard to get the deal, their work "did not exist in a vacuum."

"They benefited from the decade of foundational work that class counsel exerted in this groundbreaking MDL, which involved evasive defendants in China, complex jurisdictional challenges requiring two trips to the Fifth Circuit, decertification attempts and liability determinations," the appeals court said.  "That class counsel has otherwise been compensated for this work does not prevent them from continuing to reap the rewards of their efforts."  The 497 plaintiffs were part of 1,734 Florida cases remanded in 2018 from the MDL in Louisiana to Judge Cooke in the Southern District of Florida for further proceedings.

Following the settlement with the 497 plaintiffs, class counsel said that much of their foundational work was used to secure the deals, entitling them to 20% of the total settlement.  After a global settlement was approved in January 2020 between Taishan and the remaining class members, the class counsel amended their award request to 60% of the attorney fees paid out to the individual plaintiffs, according to the opinion.  In May 2020, Judge Cooke awarded them a 45% cut.

The counsel for the individual plaintiffs appealed the decision, arguing that common benefit fees are only appropriate when there is a common fund from which to award them.  In this case, there is no common fund or judicial supervision of a fund, they said.  They also argued that class counsel have already been highly compensated for their common benefit work by the MDL court.

But the Eleventh Circuit said that particularly in complex litigation, courts have broad managerial power and discretion to award fees.  "The district court had control over the funds pursuant to the agreement of the parties to litigate common benefit fees in the SDFL and the actions taken by the court after the settlement agreement was first filed," the appeals court said.  "Awarding a portion of these fees to class counsel was therefore within the district court's power."  The appeals court added that preventing appointed counsel from recovering fees when their work leads to settlements down the road would make it more difficult for courts to find competent lawyers to take on that work.

Jimmy Faircloth, who represents the attorneys who worked on the individual settlements, told Law360 the ruling conflicts with Eleventh Circuit precedent by allowing contractual attorney fees to be used as a fund for purposes of the common benefit doctrine.  "[The ruling] allows MDL authority to reach even deeper into the jurisdiction of a transferor court following a remand," Faircloth said.  "This creates a slippery slope with negative consequences for the class action device."

Patrick Montoya, who represents the class counsel, said he was pleased the Eleventh Circuit affirmed Judge Cooke's "well-founded opinion recognizing class counsel's efforts in this decade-long, hard-fought case."  "The settlement obtained by class counsel was an unprecedented result against Chinese companies and the first of its kind in the United States," Montoya said.  "Judge Cooke and the Eleventh Circuit prevented a group of splinter lawyers from doing an end-around and unfairly benefitting from the class counsel's monumental efforts and the excellent results obtained for class members by class counsel."

Six Flags Wants Insurer to Cover $2.89M in Attorney Fees

May 19, 2021

A recent Texas Lawyer story by Angela Morris, “Six Flags Wants Insurer Travelers Casualty to Cover $2.89 Million in Attorney Fees, reports that the Texas-based theme park filed new litigation seeking to force its insurance company to reimburse millions of dollars in attorney fees that it paid to some of the nation’s largest law firms—like Kirkland & Ellis and Perkins Coie.  In the new federal court lawsuit in Dallas, Six Flags Entertainment Corp. has alleged that its insurer, Travelers Casualty and Surety Co. of America, has wrongfully denied the park its insurance coverage for attorney fees and legal expenses.

Six Flags spent the money to defend itself from a probe by the U.S. Securities and Exchange Commission into its business dealings in China, and from a class action and shareholder litigation related to the China dealings.  Six Flags operates 26 parks in the U.S., Mexico and Canada, including four parks each in California and Texas, and two parks each in Georgia, New Jersey and New York, according to its website.

But COVID-19 has hit Six Flags hard: $82 million revenue in the first quarter of 2021 represents a 38% drop compared to the same time period in 2019, according to the company’s most recent performance report.  The park’s legal troubles started in February 2020 with the SEC subpoena, according to the complaint in Six Flags Entertainment Corp v. Travelers Casualty and Surety Co. of America, filed in the U.S. District Court for the Northern District of Texas.

Six Flags had to pay more than $2.5 million in fees to law firms Kirkland & Ellis, Lionbridge, Parker Lynch and Fayer Gipson to defend itself against the subpoena, which asked for information about a partnership with a Chinese real estate developer regarding Six Flags parks in China, and a negative $15 million revenue adjustment.  Insurance coverages for directors and officers and for organizational liability should have covered the company’s legal expenses, the complaint said.

Also in February 2020, two securities class-action complaints were filed against the company and two former executives over the same partnership and negative revenue adjustment.  Substantively the same allegations arose in shareholder derivative lawsuits in federal and state courts against the company, executives and board members, said the complaint.  Six Flags had to spend more than $290,000 in fees for lawyers at Perkins Coie to represent two company executives who were defendants in a class action, since there could be a conflict if the same attorneys represented the company and those individuals.

According to a search of federal court records on PACER, plaintiffs filed three shareholder derivative lawsuits that were consolidated into one case, and U.S. District Judge Mark Pittman on April 28 granted a motion to dismiss by Six Flags in the case, In Re Six Flags Entertainment Corp. Derivative Litigation. The defendants—Six Flags’ executives and board members—were represented by Kirkland & Ellis lawyers Jeremy Fielding of Dallas, and New York-based Daniel Cellucci, Sandra Goldstein and Stefan Atkinson.  Pittman on March 3 granted Six Flags’ motion to dismiss in a consolidated class action matter, according to an opinion and order in that case, Electrical Workers Pension Fund v. Six Flags Entertainment Corp.  Those defendants–Six Flags and two executives–had the same Kirkland & Ellis attorneys, said PACER.

In a different case—unrelated to the Chinese Six Flags parks–Six Flags had told its insurance company about a “crucial event matter” dealing with a potential proxy fight with a shareholder. Six Flags tapped Kirkland & Ellis to represent it, and the matter eventually reached an amicable agreement, said the complaint.  Six Flags incurred more than $100,000 in legal fees for this outcome, and the complaint alleged that Travelers has refused coverage.

Aside from these legal actions, the complaint alleged that at other times, Travelers has tried to recharacterize and reallocate legal fees and expenses, that should have been covered by insurance. It alleged the insurer looked to lessen exposure and to decrease policy benefits paid to Six Flags.

The theme park company is suing its insurer for breach of contract, violation of a Texas insurance law that requires prompt and fair payment of claims, and breach of the duty of good faith and fair dealing.  Six Flags has asked the court for a declaratory judgment that finds the Travelers policy should cover attorney fees and legal expenses.  In addition to recovering those amounts from Travelers, it wants to be paid back for the legal fees it is spending to sue the insurance company, said the complaint.

SCOTUS Won’t Hear IP Attorney Fee Claim

May 17, 2021

A recent Law 360 story by Dani Kass, “’Radical’ IP Atty Fee Claim Doesn’t Strike Justices’ Interest,” reports that the U.S. Supreme Court rejected a patent-holding company's attempt to limit when district court judges can make plaintiffs in frivolous patent cases cover attorney fees.  WPEM LLC's March 16 petition had called U.S. District Judge Rodney Gilstrap's decision to make it pay fees after a failed patent suit a "radical expansion" on the court's powers.  But the justices weren't persuaded, and rejected the petition without further comment.

The petition was rejected at the high court before the opposing party, SOTI Inc., had a chance to file an opposition or waive its right to do so, according to the court's online docket.  WPEM had sued Canada-based SOTI in 2018, accusing it of infringing a patent with a manual for a product called the MobiControl Speed Lockdown.  Judge Gilstrap then dismissed the case, saying a reasonable plaintiff "conducting minimally diligent" research into the case would have found an earlier version of the manual was issued before WPEM's patent.

Looking at WPEM's own evidence, Judge Gilstrap had found it was "clear that WPEM conducted no pre-filing investigation into the validity and enforceability of the asserted patent at all," and he ordered WPEM to cover SOTI's attorney fees.  The Federal Circuit upheld that ruling in December 2020, in a nonprecedential opinion.  Three months later, WPEM told the justices the ruling reflected "a radical expansion of discretion," as Judge Gilstrap was still obligated to presume that its patent was valid.

"The district court determined petitioner's case to be frivolous because the accused technology was prior art, but the district court did not make an invalidity determination, as such would require clear and convincing evidence," the company said in its petition.  WPEM had argued that Judge Gilstrap should have done more to figure out if its patent was also invalid, and said if it wasn't invalid, that would necessitate a new ruling on those fees and whether the case was exceptional.

Block Billing Reduces Fee Award in Personal Injury Case

May 14, 2021

A recent Law 360 story by Mike Curley, “After ‘Block Billing’ and ‘Paper Dump,’, Attys Net Only $786K” reports that an Arizona federal judge has awarded $786,472 to attorneys representing a man who suffered additional injuries after a fall when his insurer delayed approving surgery, down from the requested $1.04 million as a result of "block billing," a "paper dump" and other failures in their request for fees.  U.S. District Judge Susan M. Brnovich also denied Greg Jarman's request for $74,000 in expenses from American Family Insurance Co. in its entirety, saying he failed to itemize the costs and the court will not "do the hard work for him" in separating out items like clothes for one attorney and a hotel room for another.

Jarman's request for fees comes after a jury in September awarded him $4.5 million over delays in care for injuries stemming from an on-the-job fall in 2015.  The court later reduced the verdict to $2.8 million.  Jarman, who had worked at electrical company Efficient Electric Inc. for more than 10 years before his injury, experienced a severe fall on July 25, 2015, according to court documents, and a couple of weeks later he went to the hospital and was diagnosed with a shoulder sprain and put on limited activity.  Jarman's neurologist on Oct. 6 of that year recommended cervical decompression surgery, after his orthopedic surgeon called his case "urgent."

American Family wanted its own doctor, Dr. John Beghin, to examine Jarman before approving the surgery, and he agreed on Nov. 5, 2015, that surgery was necessary.  The surgery was performed five days later, and Jarman said the delay caused cognitive injuries.  In the order, Judge Brnovich reduced the total fee for several reasons, starting with Jarman's failure to comply with court rules requiring his counsel to confer with American Family's on the fees before submitting his request.

While the judge did not accept American Family's argument that Jarman isn't entitled to fees at all, she did reduce them still further, saying that there is a particularly egregious case of block billing in this case, with one of the attorneys attributing hundreds of hours of work to single line items, leaving the court unable to determine how much time was spent on specific tasks.

The request also does not contain an affidavit as to the tasks that support staff at the firms took on during the case, so the court is unable to determine if the rates for their work are reasonable, the judge wrote, adding some entries from support staff are clerical in nature.  Jarman also failed to produce evidence that his attorneys' fee rates are reasonable, the judge wrote, further warranting a reduction to the fee.  The attorney fees request also includes entry for work done relating only to dismissed defendants, the judge added