A recent Law 360 by Emily Sawicki, “Co. Held in Contempt For Failing To Pay $1M Atty Fee,” reports that a New Jersey federal judge has issued a contempt order against an India-based supplement company for failing to pay discovery misconduct fees and blocked its legal counsel from withdrawing, a year after the company was ordered to pay more than $1 million to opposing counsel following patent infringement claims dating back to 2015.  U.S. District Judge Robert B. Kugler found Prakruti Products Pvt. Ltd. in civil contempt, citing the $994,803.29 in discovery misconduct fees Prakruti still owed to Sabinsa Corp.

Judge Kugler issued an order on April 12 giving Prakruti until April 18 to issue payment.  As of oral argument on May 1, Prakruti had paid just $8,671 of what had been more than $1 million in outstanding fees toward Sabinsa, in order for the plaintiff to pay back $878,548.56 in ArentFox Schiff LLP law firm fees, $15,120 in "Indian-law counsel fees," $96,750.50 in Saiber LLC law firm fees and $13,035.23 in costs.

Judge Kugler ordered the clerk of the District of New Jersey's Camden Vicinage to enter default against Prakruti on Sabinsa's claim that Prakruti violated a 2015 settlement agreement between the two entities, and converted a summary judgment briefing, set to take place in May, into a briefing on Prakruti's default judgment.

In his order, Judge Kugler specified that, although Prakruti's attorneys, Gregory A. Krauss and James T. Wilson of Davidson Berquist Jackson & Gowdey LLP and Jason B. Lattimore of the Law Office of Jason B. Lattimore, would not be permitted to withdraw, "Prakruti's attorneys are not held jointly or severally liable with Prakruti for the remainder of the discovery misconduct fees."

The three had filed a motion to withdraw from their representation on April 14 and Lattimore provided reasoning in a letter dated April 25, saying, "a conflict of interest has arisen between Prakruti, on the one hand, and its current counsel, on the other," citing a pro se, ex parte letter entered into the docket by a Prakruti company director.  "It appears that Prakruti intends to shift blame for its current predicament from itself to its counsel for their supposed failure to provide 'proper representation,'" Lattimore wrote of the company's letter.

The fee amount itself was a point of contention, after then-U.S. Magistrate Judge Karen M. Williams calculated an initial award of about $879,724 to the ArentFox Schiff lawyers in November 2021, recalculated to $878,548 by U.S. Magistrate Judge Sharon A. King, in April 2022.  The award stems from an underlying patent infringement case brought by New Jersey-based Sabinsa, which claimed Prakruti was violating its patent by selling a turmeric supplement.

During a "contentious" discovery process, Judge Williams found that "Prakruti had withheld certain information from Sabinsa and also spoliated pertinent evidence," according to court documents.  The judge sanctioned Prakruti with an adverse inference, finding that Sabinsa's legal efforts to prove Prakruti's misconduct warranted an award of attorney fees against Prakruti.

A recent Law 360 story by Tiffany Hu, “High Court Asked to Review $5M Atty Fees in Fracking IP Suit,” reports that the U.S. Supreme Court has been asked to look into whether the Federal Circuit created "uncertainty and confusion" when it affirmed that a patent dispute over fracking technology was exceptional and warranted granting $5 million in attorney fees.  In a Jan. 12 certiorari petition, Heat On-The-Fly LLC said that the Federal Circuit erred in affirming a North Dakota federal judge's decision that its lawsuit against Energy Heating LLC and other companies was the kind of "exceptional" case that merited attorney fees.

Heat On-The-Fly had argued that the district court failed to take into account the "manner" in which the company litigated the case — including that it did not engage in litigation misconduct — but the Federal Circuit said in October that the lower court "properly considered the totality of the circumstances."  In doing so, Heat On-The-Fly said that the appeals court "ignore[d] the distinction between 'the substantive strength of a party's litigating position' and 'the unreasonable manner in which the case was litigated," citing the high court's 2014 Octane Fitness ruling.

The "decision in this case creates uncertainty and confusion regarding the factors that district courts must address and consider in order to properly exercise their discretion and consider the 'totality of the circumstances' when determining exceptionality," the petition states.

After a bench trial in 2016, U.S. District Judge Ralph R. Erickson found that Heat On-The-Fly's patent was unenforceable because the company and inventor Ransom Mark Hefley knowingly did not tell the U.S. Patent and Trademark Office when they filed a patent application for the concept in September 2009 that the invention had been in use as early as October 2006.  The district judge later rejected Energy Heating's motion for attorney fees, but the Federal Circuit in 2018 said the judge erred in refusing the request because he did not explain his decision, though it affirmed that the patent was unenforceable due to inequitable conduct.

A recent Law360 story by Sameer Rao, “Judge Told to Slash ‘Friday The 13th’ Writer’s $1.2M Atty Fees,” reports that the fees that screenwriter Victor Miller seeks for the prominent copyright attorney who secured his win for the rights to his "Friday the 13th" script are needlessly high and based on improper tactics, according to opposition counsel's memorandum.  The filing that calls for the fee bid's rejection drew from some of the accusations that Horror Inc., the Massachusetts company that owns the successful slasher film franchise that grew from Miller's 1980 screenplay, and co-plaintiff Manny Co. made against Miller's lawyer Marc Toberoff of Malibu, California-based Toberoff & Associates PC.

Among the memo's allegations is that about 15% of the $1.18 million attorney fees request is based on Toberoff's "procedurally improper motion" that used California's law prohibiting strategic lawsuits against public participation, or SLAAPs — a motion made invalid by the companies' Massachusetts and Connecticut bases and the trial's federal district court setting, the memo argued.  The two plaintiffs also argued that Toberoff's repeated accusations of frivolous arguments and litigation misconduct by the companies' counsel, ranging from filing a supposedly retaliatory copyright action to using "scorched-earth tactics," were "unfounded" and "preposterous."

"Miller now argues that plaintiffs have misrepresented legal authority in their briefs," the filing continued. "Each of Miller's baseless accusations are belied by the actual content of plaintiffs' summary judgment briefs and the text of the authorities themselves. Miller's accusations are nothing more than an attempt to create a basis to award attorneys' fees where none exists."

The long-running trial in Connecticut's federal district court seemingly hit its climax this September, when an appeal to the Second Circuit ended in Miller being allowed to use a "termination right," which allows artists to regain rights to works they had previously signed over.  The appellate ruling largely substantiated an earlier ruling by Connecticut U.S. District Judge Stefan R. Underhill, who granted Miller a summary judgment and agreed with his argument that the production companies did not sufficiently prove that he was their employee.  The cases' implications for copyright law, termination rights, artists' obligations to producers and the "Friday the 13th" movies' future led to them being closely watched by entertainment industry observers.

Horror Inc. argued from the district court case's start that Miller had worked as a term employee and thus had no rights to his screenplay.  Despite losing that battle, they argued in the memo that there was no guarantee of attorney fees under the Copyright Act because they raised "novel questions of law" regarding Miller's rights as both a Writers Guild of America member and contractor.  They also said that the summary judgment made for a quick enough case, with limited discovery, that the fees were especially steep.  "When a case raises a "novel and unsettled question of copyright law," an award of attorney's fees on the basis of purported unreasonableness is not warranted," the companies said.  Horror Inc. and Manny Co., via their counsel from the Los Angeles law firm Greenberg Glusker Fields Claman & Machtinger LLP, seek to have the fees either thrown out or reduced to eliminate the time spent on the anti-SLAAP motion.

Reached Thursday, Toberoff said that he had not read the new opposition to his renewed fees bid.  When its claims were described to him, he reiterated his justification of the anti-SLAPP invocation, given its applicability in a California federal district court case where he helped late musician Ray Charles' children get copyrights to his songs.  He also rejected the characterization of his actions as misconduct and fees as excessive, citing a study of attorney fees from his motion that compared his to other firms' calculations.

"Their accusations are attempts at deflection," he told Law360 Pulse.  "There's no basis for it, whereas there is a basis for what we say because it's documented in a declaration, which is attached as evidence."  "Our fees were actually below the top average in [major U.S. cities," he added. "I would submit that are lower than what our opposing counsel charges."

A recent Law 360 story by Nick Muscavage, “NJ Judge Denies $991K Atty Fees Awarded By Magistrate,” reports that a New Jersey federal judge ordered a magistrate judge to recalculate attorney fees for Arent Fox LLP in a patent dispute, finding that the jurist failed to apply prevailing precedent addressing applicable forum rates.  U.S. District Judge Robert Kugler ordered the magistrate judge to reconsider the $991,624 award through the lens of the Third Circuit's decision in Interfaith Community v. Honeywell International, a 2005 decision holding that counsel fee awards should be calculated using the forum of the dispute, subject to exceptions.

The award at issue was computed using the rates in Arent Fox's home forum of Washington, D.C., which are pricier than the dispute's forum of New Jersey federal court in Camden.  The Interfaith decision held that a party seeking to use the home forum of its counsel in the attorney fee calculation versus the dispute forum must show that the firm has expertise unavailable in the dispute forum or that the local counsel wasn't available.

"In the final analysis, then, since the order did not rely upon Interfaith as the prevailing precedent, Sabinsa had not been tasked to meet its legal burden under Interfaith and fully prove the reasonableness of its requested fees," Judge Kugler wrote, directing the magistrate judge to first determine the proper forum rate before recalculating the fees.

The award stems from a patent infringement case, in which Arent Fox and Saiber LLC represented the plaintiff, East Windsor, New Jersey-based Sabinsa Corp., which claimed that Prakruti Products Pvt. Ltd. was selling a turmeric supplement for which Sabinsa held the patent.  During a "contentious" discovery process, U.S. Magistrate Judge Karen M. Williams found that "Prakruti had withheld certain information from Sabinsa and also spoliated pertinent evidence," according to court documents.  She sanctioned Prakruti with an adverse inference, finding that Sabinsa's legal efforts to prove Prakruti's misconduct warranted an award of attorney fees against Prakruti.

Saiber claimed it billed $98,352 for legal services to Sabinsa, while Arent Fox claimed it billed $980,169.  On May 21, Judge Williams awarded Sabinsa's counsel $991,624 in attorney fees and costs in the amount of $13,035.  However, Judge Kugler said that Sabinsa showed "neither that Arent Fox had special expertise as patent attorneys not available from local attorneys in this vicinage nor that Sabinsa was unable to get needed patent expertise from local firms."

In its challenge to the magistrate judge's award, Prakruti also targeted the inclusion of Saiber, Sabinsa's local counsel, in the fee calculation.  Since Sabinsa cannot show Saiber was unwilling to represent the company as its patent counsel, the calculation of fees based on two different rates — the non-forum rate of the Arent Fox patent litigators and the forum rate of Saiber as local counsel — goes against the proper application of Interfaith, Prakruti argued.

Judge Kugler granted Prakruti's motion as to the time entries of Arent Fox, but denied the exclusion of Saiber in the fee calculation.  He remanded the time entries of Arent Fox to the magistrate judge for recomputation using the specific, relevant forum rate for the legal skill level with which the entry was executed, unless an Interfaith exception is demonstrated.  Judge Kugler said that the proper forum rate for the patent litigation expertise expended by Arent Fox must be first established.  He rejected Prakruti's assertion that Saiber's fees were duplicative of Arent Fox's and shouldn't have been factored in the attorney fee.

A recent article by Charles H. Dick, Jr., “Recovering Attorney Fees in Arbitration,” reports on recovering attorney fees in arbitration.  This article was posted with permission.  The article reads:

An accurate assessment of damages is crit­ical for case evaluation, and the cost of dispute resolution plays an important role in deciding to pursue claims.  Even strong liability cases can fail to make economic sense.  That is why a thorough case appraisal should thoughtfully consider the attorney fees to be incurred.  And equally important, an objective case valuation should assess the likelihood of recovering attor­ney fees.

The “American Rule,” which specifies that each party must bear its own attorney fees, is a lesson for law school’s first year, and though the rule has been slightly modified to encour­age certain litigation in the public interest, fee-shifting remains the exception rather than the rule.  Against this background, professional responsibility obliges counsel to keep clients informed about litigation economics (Cal. Rules Prof. Conduct, rule 1.4)—something critically important as a case approaches the in­evitable mediation.  Unfortunately, experience teaches that an exacting analysis of litigation cost and exposure to fee-shifting often is an afterthought, and that the development of case strategies, discovery plans, and tactical maneu­vers occurs without thoughtfully weighing the implications of the American Rule and its ex­ceptions.  This is a recurring issue in arbitration.

Perhaps litigators approach attorney fee recovery casually, thinking there will be ample time to deal with the question before a final judgment is entered.  Arbitration, however, is different.  The binding nature of arbitration makes appellate relief unlikely.  An arbitrator’s award of attorney fees is unlikely to be sec­ond-guessed by a court, even if there is no stat­utory or contractual basis for the award. (See Moncharsh v. Heily & Blasé (1992) 3 Cal.4th 1, 33; id. at p. 11 [“it is the general rule that, with narrow exceptions, an arbitrator’s decision cannot be reviewed for errors of fact or law.  In reaffirming this general rule, we recognize there is a risk that the arbitrator will make a mistake.”].)  When it comes to recovering attor­ney fees in arbitration, counsel needs to get the issue correct from the beginning.

California has codified the American Rule in Code of Civil Procedure section 1021.  Con­tractual arrangements can modify the rule and provide for fee-shifting, but a careful study of the parties’ language is critical. (See Valley Hard­ware, LLC v. Souza (Nov. 20, 2015, D067076) 2015 Cal.App.Unpub. Lexis 8347 [affirming arbitrator fee award in face of inconsistent contract provisions].)  Contractual language inevitably varies: Some agreements provide for recovery of fees “when permitted by law”; some say fees “actually incurred” are recoverable; some limit attorney fees to a percentage of the damages awarded; some say the prevailing party “shall” recover fees, while others use the uncertain “may.” Civil Code section 1717 de­fers to the contracting parties, subject to minor tweaks that limit fees to a “reasonable” amount and require that fee recovery be reciprocal.

In addition to carefully scrutinizing con­tract language, one also needs to know the procedural rules that will be applied in arbi­tration.  For example, in a Financial Industry Regulatory Authority (FINRA) arbitration regarding the investment brokerage industry, the arbitral panel is directed to determine the “costs and expenses,” yet absent some statutory exception to the American Rule, fee-shifting still depends on the parties’ underlying agree­ment (see FINRA rule 12902(c)).  Unless the parties’ agreement forbids fee-shifting, the rules of the International Institute for Conflict Prevention and Resolution (CPR) authorize the arbitration tribunal to apportion costs for “legal representation and assistance … incurred by a party to such extent as the Tribunal may deem appropriate” (see CPR 2019 Adminis­tered Arbitration Rules, rule 19.1(d) & 19.2). Rule 24(g) of the JAMS Comprehensive Arbi­tration Rules & Procedures is the mirror image: “[T]he Arbitrator may allocate attorneys’ fees and expenses … if provided by the Parties’ Agreement or allowed by applicable law” (ac­cord, Uniform Arbitration Act, § 21).

If all parties request an award of attorney fees, rule 47(d)(ii) of the American Arbitra­tion Association’s Commercial Arbitration Rules and Mediation Procedures authorize an award of attorney fees even if the underlying agreement is silent on the issue.  Throwing in a boilerplate prayer for attorney fees and costs without considering the consequences can result in fee-shifting.  And during arbitration, even casual discourse about attorney fees can be a basis for fee-shifting, absent an express agreement to the contrary.  (Marik v. Univ. Vill. LLC (Oct. 3, 2013, B247171) 2013 Cal.App. Unpub. Lexis 7143 [brief asserting entitlement to recover fees provided basis for arbitrator’s fee award]; see Prudential-Bache Securities, Inc. v. Tanner (1st Cir. 1995) 72 F.3d 234, 242-243 [“costs and expenses” under New York Stock Exchange Rules interpreted to permit award of attorney fees when both sides to dispute requested attorney fee award].)

Counsel should be mindful of an arbitra­tor’s predisposition to produce an award that is “fair to all concerned,” and this may include fee-shifting as an exercise in equity. (See Co­hen v. TNP 2008 Participating Notes Program, LLC (2019) 31 Cal.App.5th 840, 877 [absent parties’ agreement limiting arbitrator power, award of attorney fees on basis of equity and conscience affirmed].)  Further, misconduct of counsel may be a reason to “sanction” a party by reducing an attorney fee award. (E.g., Karton v. Art Design & Const., Inc. (2021) 61 Cal.App.5th 734 [fees reduced for incivility of counsel].)  And consider JAMS Comprehensive Arbitration rule 24(g), which authorizes an arbitrator to consider noncompliance with discovery orders when awarding attorney fees.

Attorney fees incurred prosecuting or defending a complaint to compel arbitration may be recoverable, but the procedural posture of the civil court action will determine when fee-shifting may occur. (E.g., Otay River Const. v. San Diego Expressway (2008) 158 Cal.App.4th 796.)  Though there is authority to the contrary (Benjamin, Weill & Mazer v. Kors (2011) 195 Cal.App.4th 40 [allowing recovery of fees even though liability on claim awaited arbitration]), the better-reasoned view is expressed in Roberts v. Packard, Packard & Johnson (2013) 217 Cal. App.4th 822.  In that case, clients filed suit against their former lawyers, alleging breaches of fiduciary duty and conversion in connection with settlement of qui tam litigation.  The law firm’s motion to compel arbitration was grant­ed, and the trial court awarded the firm its fees as the prevailing party.  On appeal, the court was persuaded the phrase “an action” means an entire judicial proceeding; procedural steps in the course of a lawsuit, such as a motion to compel arbitration, are steps in the prosecution or defense of an action, but they are not the entirety of an action on a contract.  The Roberts case stands for the proposition only one side can “prevail” in a lawsuit, and fee-shifting had to await the arbitrator’s final determination of the clients’ professional liability claims. (Id. at p. 843.)

Civil Code section 1717 defines the “pre­vailing party” as the person who recovers the greater amount on a contract.  Yet, Hsu v. Ab­bara (1995) 9 Cal.4th 863, makes it clear this involves more than a mathematical calculation.  The “court is to compare the relief awarded on the contract claim or claims with the parties’ demands on those same claims and their liti­gation objectives as disclosed by the pleadings, trial briefs, opening statements, and similar sources.” (Id. at p. 876.)  Thus, it is possible for a party to prevail by achieving litigation objectives, even though an opponent may have obtained a favorable verdict on liability theories.  Generally, however, when a verdict on contract claims is good news for one party and bad news for another, a court is obligated to treat the happy litigant as the prevailing party.

The identity of a prevailing party becomes more complicated when results of an arbitra­tion are mixed. In this regard, Marina Pacific Homeowners Association v. Southern California Financial Corp. (2018) 20 Cal.App.5th 191, is instructive.  This case between a homeowners’ association and a finance institution exempli­fies litigation that produces some wins and some losses for both sides.  The case involved a claim by the homeowners that they did not owe monthly fees the financial institution contended amounted to $97 million over the life of a lease.  The trial court found against the homeowners and declared there was an obligation to make monthly payments.  But the court also found the monthly payment rate was only 40% of the financial institution’s demand.  On appeal, the court declined to consider settlement communications as being a reliable expression of a party’s litigation objectives and concluded the “substance” of the result was a $58 million loss for the defendant.  Invoking the decision in the Hsu case, the court con­cluded there was no simple, unqualified result pointing to either side as a prevailing party, and the trial court had acted within its discretion in denying recovery of attorney fees.

One lesson regarding “prevailing parties” is the need for caution in over-pleading one’s case. Some counsel cannot resist converting a straight-forward breach of contract action into a fraud case with overtones of unfair business practices and assorted tort claims.  Pleading multiple claims that eventually are discarded for want of proof can be dangerous, especially unsubstantiated allegations of fraud.  In De La Questa v. Benham (2011) 193 Cal.App.4th 1287, 1295, an appellate court acknowledged the practice of overstating one’s claims, which makes it more difficult to determine the victor.  In a case producing mixed results, unsupported claims may lead to an opponent’s recovery of fees.

Counsel in arbitration need to address fee-shifting with a laser focus, beginning with the preliminary hearing, which is the first op­portunity to meet the arbitrator and learn his or her preferences.  Arbitrators can be expected to employ the lodestar method recognized as acceptable by a long line of California cases (e.g., PLCM Group v. Drexler (2000) 22 Cal.4th 1084, 1094).  Several issues can be dis­cussed at the hearing: What procedures will the arbitrator use to deal with attorney fee and cost issues?  Will these matters be bifurcated until an interim or tentative award on the merits is de­livered? Does the arbitrator have requirements for form, style, and specificity of time records? Will “block billing” be accepted? If more than one law firm will be appearing for a party, the conference also is an opportunity to explain why and set the stage to defuse a later argument about duplicated efforts.

In a case with both contract and tort claims, counsel should consider keeping a separate re­cord of time spent on matters that may not be entitled to recovery of attorney fees.  Counsel should be prepared to demonstrate that time records were prepared contemporaneously with the work reported, since there often is a lack of daily time recordation, let alone contem­poraneous reporting.  The fee application also should explain how the litigation team was de­ployed and why individual tasks were assigned to team members.

Proving the reasonableness of time and rates ordinarily can be accomplished by declarations of counsel regarding the usual, customary, and regular timekeeping and billing practices of the law firm.  Resumes of the personnel involved and a summary of the work may be useful.  (See, e.g., Syers Properties III, Inc. v. Rankin (2014) 226 Cal.App.4th 691, 702.)  And this informa­tion can be supplemented by the opinions of other lawyers objectively knowledgeable about actual practices within the community.  Survey data often is available for firms in metropolitan areas, and those reports also carry credibility.  But counsel should be alert to differences between posted or rack rates and hourly rates actually realized, because there often is a ma­terial difference.  As with hotels and rental cars, there may be a significant disparity between the advertised rate and what people actually pay.

Nemecek & Cole v. Horn (2012) 208 Cal. App.4th 641 makes it clear that a calculation of “reasonable fees” does not hinge on what fees actually were paid.  In that case, defense counsel had been compensated on the basis of negotiat­ed insurance panel rates.  The arbitrator refused to be controlled by such rate structures and declined to use the Laffey Matrix employed by the United States Department of Justice in de­termining rates the federal government believes are reasonable.  Instead, the award of attorney fees was based on an independent assessment of what would be reasonable, and the appellate court affirmed confirmation of that award. (See Chacon v. Litke (2010) 181 Cal.App.4th 1234, 1260 [awarding reasonable rate $50 greater than counsel’s regular rate].)

There are three important things to remember about recovering attorney fees in arbitration.  First, carefully study the parties’ agreement to understand the rights it extends and the limitations it imposes.  Second, avoid pleading unnecessary claims that make it seem the end result tips in favor of one’s opponent.  Third, vacating an erroneous fee award is unlikely, so make your best case regarding fee-shifting before the entry of a final award.

Charles H. Dick, Jr. is a neutral with JAMS, and he serves as a mediator and an individual arbitrator or member of multi-arbitrator panels in complex commercial matters, securities and investment disputes, professional liability cases, products liability issues, and other business-related controversies.

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