Seventh Circuit Upholds Slashing Of Over $300K In Attorneys’ Fees Based On $2,000 Jury Verdict

scissorsAn easy to parrot, hard to apply attorney fee maxim involves the “prevailing party” standard.  To get attorneys fees awarded under a statutory or contractual fee-shifting provision, you must “prevail” or win the case.  So what happens when your win is a proverbial Pyrrhic one?  That is, you win the lawsuit but get only a fraction of the money you sought? Or, you’re victorious on only one of multiple claims; losing the other claims.  What then?

Montanez v. City of Chicago (http://caselaw.findlaw.com/us-7th-circuit/1670216.html) examines these issues and more in a decision that illustrates the broad discretion a district court has in both fashioning and reducing claimed attorneys fees based on the level of the fee seeker’s litigation success.

The plaintiff filed a civil rights suit against two police officers and a municipality alleging excessive force.  The plaintiff also pled various state law claims.  The state law claims were dismissed as untimely and the plaintiff went to trial on his civil rights (Section 1983) claims.  A jury awarded the plaintiff $2,000 against one of the officers: $1,000 in compensatory damages; $1,000 in punitives.  The jury ruled against the plaintiff on his claims against the other police officer.  The plaintiff sought fees and litigation costs of over $400,000.  The defendants of course argued for a severe fee slashing in light of the paltry jury award.  The District Court (mostly) obliged by lopping off over $300,000 of the plaintiff’s fees and costs.  Plaintiff appealed.

Held: Affirmed

Reasons:

Seven lawyers billed nearly 1100 aggregate hours for the plaintiff in litigating his excessive force claims.  The final tab exceeded over $400,000 in fees and almost $7,000 in costs.  The District Court shortened the fee amount to just over $108,000 and awarded costs of over $3,000.  So the plaintiff still got more than 50 times the jury award.

Affirming the trial court’s fees and costs reduction, the Seventh Circuit noted that in cases “lacking private incentives to limit the scope of litigation” (like fee-shifting Federal suits), a trial judge should exert his authority under Federal Rules 16 and 26 to guard against overlawyering, excessive discovery and wasteful pretrial activities.  The Court then stated the specific attorneys’ fees rules that guide the court’s analysis:

– a prevailing party in a Section 1983 suit can recover “a reasonable attorney’s fee” that is generally computed by the “lodestar” method: number of hours multiplied by hourly rate;

– where the hours a plaintiff spent on successful claims can be segregated from time spent on unsuccessful claims, the time spent on the latter claims can be subtracted from the fee award;

– an attorneys’ reasonable hourly rate is based on the local market rate – the best evidence of which is the rate charged by that attorney for similar work;

– if the court can’t determine a reasonable hourly rate based on the petitioning attorney’s rates, the court looks to the rates charged by similarly experienced attorneys in the community and evidence of rates set for attorneys in similar cases;

– hourly attorney rates are particularly difficult in cases where the attorney typically uses contingent fee agreements;

– conclusory affidavits from other attorneys who opine that another attorney’s rates are reasonable have little probative value;

– the court’s goal in shifting fees (to the losing party) is not “auditing perfection”: instead, it’s to attain “rough justice”;

– in the area of legal research, the trial court has broad discretion in determining what research likely contributed to the successful result at trial and whether certain research was “esoteric”, redundant or had nothing to do with plaintiff’s winning claims;

– the district court can strike vague billing entries and where a fee request dwarfs actual damages won at trial, this raises a “red flag” (as to the validity of the requested fees);

– 28 U.S.C. § 1920 allows a prevailing party to recover “costs” including (i) costs for transcripts necessarily obtained for use in the case; (ii) printing costs and (iii) copying costs for materials necessarily obtained for use in a case.

Montanez, pp. 7-13, 17.

With these guideposts informing its analysis, the Seventh Circuit upheld the District Court’s cuts to the plaintiff’s fees and costs request.  Stating there is no precise mathematical formula for adjusting fee requests, the Court noted that a fee reduction is proper where fees dwarf the trial damage award and the plaintiff achieves “limited success.”

Here, the plaintiff’s success was limited as he won only $2,000 at trial and lost on 4 of his 6 claims.  The Seventh Circuit affirmed the District Court’s 50% cut in the plaintiff’s total lodestar fees based on the comparatively low money judgment amount and on plaintiff losing the majority of his claims.  The other fees and costs reductions approved by the Seventh Circuit included those based on (1) fees generated for witnesses that were never called; (2) for deposition transcripts that were never used, (3) transcription rates that exceeded the allowable amount under Local Rule 54 and (4) legal research into areas that had no bearing on plaintiff’s successful claims.  The Seventh Circuit found these subtractions proper and within the District’s Court’s fee award discretion.

Summary: The case presents a fairly exhaustive summary of a Federal court’s fee award calculus and shows the broad discretion a district court has in lopping off what it views as extraneous fees and costs.  It’s clear that while there is no precise arithmetical rule that governs in all fee cases, a court will look at the claimed fees in relation to the actual money judgment won at trial and will also consider how many claims a litigant won and lost in the same case when determining the fee award.

Integration Clause Bars Trader’s Commission Claims Against Financial Firm

Integration clauses – also called “merger” clauses – are staples of commercial contracts in diffuse business settings.  The Northern District of Illinois recently found that an integration clause in a compensation agreement defeated a futures trader’s claims for unpaid commissions in Colagrossi v. UBS Securities, LLC, 2014 WL 2515131 (N.D.Ill. 2014).
The plaintiff alleged that in 2005, he and his then employer entered into an oral agreement for commission payments earned on foreign futures transactions.  When that employer was absorbed by another entity in 2006, the plaintiff signed a written employment agreement with the new company –  one that contained an integration clause.  The agreement was silent on the oral futures deal that plaintiff cut with his ex-employer. Plaintiff’s successor employer then folded into a third entity.  Plaintiff signed a second employment agreement in 2007 with the new (“third”) employer.  That agreement also contained an integration clause and made no mention of the 2005 oral commission arrangement.
After he was fired, the plaintiff sued his new employer for unpaid commissions and bonuses totaling about $2M in total.  He filed counts for breach of oral contract and a claim under the Illinois Wage Payment and Collection Act.  The defendant moved for summary judgment on plaintiff’s claims.
 Ruling: Motion granted.  Summary judgment for defendant.  Plaintiff’s claims dismissed.
 Q: Why?
 A:  Both written employment agreements (the one he signed in 2005 with defendant’s predecessor and the one he signed with defendant in 2006) contained integration clauses that provided that the agreement stated the entire terms of the parties’ agreement and superseded all prior verbal agreements or representations touching on the plaintiff’s employment. 
    
In Illinois, where contracting parties include a contractual integration clause (i.e., a clause stating that the written agreement is complete and final and reflects the entire understanding of the parties), they are manifesting their intent to protect themselves against after-the-fact changes to the contract.  The purpose of an integration clause is to establish that negotiations leading up to a written contract are not the agreement and to also guard against a party to the agreement trying to alter the contract’s meaning by trying to explain his state of mind when the contract was signed.
 Here, both written employment agreements contained an integration clause that stated the parties’ entire agreement was reduced to writing and that also precluded plaintiff’s attempt to rely on oral promises that pre-dated the contracts’ execution.  The clauses broadly applied to bar reliance on oral agreements relating to the “subject matter” of the contracts.  Since plaintiff’s oral contract claim for commissions  went to the heart of the employment agreements’ purpose, the oral agreement was defeated by each contract’s integration clause. (*4-5).
The Court also rejected the plaintiff’s claim for bonus payments that was premised on the Illinois Wage Payment and Collection Act, 820 ILCS 115/1 (the Wage Act).  The Wage Act applies broadly to wages, salaries, commissions and bonuses; so long as they are based on an employment agreement (written or oral).  820 ILCS 115/2 (http://paulporvaznik.com/the-illinois-wage-payment-and-collection-act-some-basics/697).  Here, the plaintiff’s Wage Act claim was not only defeated by the two integration clauses (one in each employment contract) but also because an employer’s past practice of paying bonuses isn’t enough to make out a viable Wage Act count. (*6-7); Carroll v. Merrill Lynch, 2011 WL 1838563 *17 (N.D.Ill. May 13, 2011) (granting summary judgment to employer on employee’s Wage Act claim because “past practice itself is not enough to support a wage claim”); Stark v. PPM America, Inc., 354 F.3d 666, 672 (7th Cir.2004)(same).
Take-aways: Integration clauses will be enforced as written.  If they are broad and clearly-worded, the clauses will defeat a party’s attempt to modify the plain text of a contract.  The case is also noteworthy for its discussion of the Wage Act.  While the Wage Act’s scope is broad, this case clearly illustrates that a claim based on the Act must allege more than an employer’s past practice or course of conduct in making bonus payments.  Instead, there must be an express agreement – written or oral – to support an employee’s claim under the Act.

When A Third Party (And Non-Party) Can Enforce An Arbitration Provision

arbitrationThe Northern District compelled arbitration of a multi-count fraud suit filed by a software company against a former salesman and his new employer in Paragon Micro, Inc. v. Bundy, 2014 WL 2441969 (N.D.Ill. 2014).

The ex-employee formed his own company and started steering business from his former employer.  The former employer sued for computer tampering, breach of fiduciary duty, unfair competition, and conversion.

The Independent Contractor Agreement signed by the defendant salesman said “any and all disputes” would be resolved by binding arbitration.  After the plaintiff refused defendants’ demand for arbitration, the defendants moved to compel arbitration.

Result: motion granted.

Reasons:

– The Federal Arbitration Act, 9 U.S.C. § 1 (FAA), reflects a liberal policy favoring arbitration agreements;

– Courts should enforce arbitration clauses unless they are tainted by fraud, duress, unconscionability or other standard contract defenses;

– The FAA permits a court to compel arbitration where there is (1) a written agreement to arbitrate; (2) a dispute covered by or within the scope of an arbitration agreement; and (3) a refusal to arbitrate;

– Federal courts rely on state contract formation rules in deciding whether parties agreed to arbitrate a particular issue and a party can be compelled to arbitrate only those issues he agreed to arbitrate;

– The party opposing arbitration agreement bears the burden of showing why the agreement is unenforceable;

– Any doubts concerning arbitration, should be resolved in favor of it;

– Contractual arbitration provisions survive termination of the contract unless the contract expressly states otherwise;

–   “arising out of”, “relating to” and “any and all” phrasing leads to a strong presumption of arbitrability.

(**3-5, 8).

Application:

The Court held that the contract’s arbitration clause applied to the plaintiff’s various claims against the defendants.  Finding that plaintiff’s Complaint allegations fell within the scope of the arbitration clause, the Court pointed to the arbitration clause’s applicability to “any and all disputes” connected to the individual defendant’s account representative duties.

The Court also found that the corporate defendant – a non-party to the Independent Contractor Agreement – could still enforce the arbitration clause against the plaintiff.

Under Illinois law, a non-party can require arbitration where (1) the plaintiff lodges claims against the non-party that reference a written agreement (that has an arbitration clause); and (2) when the plaintiff’s claims against the third party are factually intertwined with the claims against another party that did sign the contract.

Here, both non-party exceptions applied.  The plaintiff’s claims referred to a written agreement – the Independent Contractor Agreement –  and the allegations directed to the corporate defendant (non-party) were enmeshed with the plaintiff’s claims against the individual defendant (the account rep).

Finally, the court nixed the plaintiff’s waiver argument.  The Court cited case law that suggests that at least a several-month delay – from suit filing to the arbitration demand – is usually required for a party to waive an arbitration provision. (*10).

Afterwords:

This case illustrates that contractual arbitration clauses will be upheld where they are broad and clearly worded.  The presence of “any and all disputes” or “arising out of” verbiage will likely signal all-encompassing arbitration coverage. 

Non-parties can enforce an arbitration clause where they’re third-party beneficiaries of the contract or where the claims against the third party are factually connected to claims against a party that did agree to arbitration.