Trade secret grab bag

Aspen Technology Inc v. M3 Technology Inc. affirmed an $11 million judgment in a suit to enforce a noncompetition agreement.  Nos. 12-20388 & 13-20268 (May 29, 2014, unpublished).  Most of the grounds are fact-specific and substantially influenced by spoliation matters.  On a key copyright issue, the Court held: “Aspen’s registration of its derivative materials permits Aspen to bring a claim that M3 had infringed preexisting versions of its software,” aligning the Fifth Circuit with several other courts that have addressed the point.  The Court removed roughly $500,000 in attorneys fees arising in prior litigation from the award for tortious interference, noting that the opposing party in that litigation was also a party in this case, removing the fee claim from the “equitable exception” to the rule that a contract or statute must allow recovery of fees.

Fees about fees

At issue in Asarco v. Baker Botts. L.L.P. was a fee enhancement associated with an exceptional recovery in fraudulent transfer litigation for a bankruptcy estate.  No. 12-40997 (April 30, 2014).  The Fifth Circuit credited the bankruptcy court’s detailed findings about the quality of the law firms’ work and the “rare and extraordinary” result.  In so doing, the Court reminded that “[b]ecause this court, like the Supreme Court, has not held that reasonable attorneys’ fees in federal court have been ‘nationalized,’ the bankruptcy court’s charts comparing general hourly rates of out-of-state firms and rates charged in cases pending in other circuits are not relevant.”  The Court rejected the firms’ request for compensation from the estate for defending their fee applications, reasoning that the Code had sufficient protections against vexatious litigation, and declining to further expand the American Rule about defendants’ fees.

Partial Rule 68 offer does not moot case

Payne sued Progressive Financial for violations of fair debt collection statutes, seeking statutory damages, actual damages, attorneys fees, and costs.  Payne v. Progressive Financial Services, No. 13-10381 (April 7, 2014).  Progressive made a Rule 68 offer of $1,001 in damages and fees to the date of the offer, to which Payne did not respond.  The district court reasoned that Payne had not pleaded a basis to recover actual damages, and that the unaccepted offer mooted her claim for statutory damages because it exceeded the amount she could recover.  The Fifth Circuit reversed, finding that the district court’s analysis of the actual damages claim conflated jurisdiction with resolution of the merits; accordingly, Progressive’s offer was incomplete because it did not address actual damages.  A footnote reminds that a complete Rule 68 offer can moot a case, and that the Court did not reach the argument that the offer was incomplete because it did not include post-offer fees and costs.

How to get attorneys fees

In Richardson v. Wells Fargo, a mortgage servicer sought recovery of attorneys fees pursuant to a provision in the deed of trust that referred to “paying reasonable attorneys’ fees to protect its interest in the Property and/or rights under this Security Instrument.”  No. 13-10002 (Jan. 24, 2014).  The issue was whether a Rule 54(d)(2) motion was an appropriate vehicle to make its claim, which turned on “whether the fees are an element of damages or collateral litigation costs.”  The Fifth Circuit concluded this provision defined legal fees as collateral costs, not “an independent ground of recovery” where Rule 54 might become inapplicable.  The Court went on to hold that “motions for attorney’s fees provided by contract are permissible under Rule 54(d)(2)” after reviewing and rejecting authority that suggested otherwise.   (For thorough review of when fees become damages in their own right under Texas law, and other key points about fee awards, please consult  “How to Recover Attorneys Fees in Texas” by my colleagues Trey Cox and Jason Dennis.)

Contingent fee and quantum meruit

The City of Alexandria settled a lawsuit with an electricity supplier for a $50 million recovery.  A sordid dispute then broke out among the City and various lawyers who worked on the case and asserted a contingency interest in the recovery.  City of Alexandria v. Brown, No. 12-30823 (Jan. 15, 2014).  The opinion, which affirms the district court’s resolution of the dispute, provides an overview of when “quantum meruit” principles control over the terms of a contingent fee agreement.  As to one lawyer, relevant factors included the end of her involvement relatively early in the matter, and seemingly unreliable time records during that involvement. As to another, the court noted that the contract created a “joint obligation” between him and another lawyer that became impossible of performance after he was disbarred, requiring a quantum meruit analysis.  (A related appeal was disposed of later in the year in deference to this panel opinion.)

“Presentment” of primary obligation = presentment to guarantor.

After a recent example of attorneys fees that were not “inextricably intertwined” under Texas law, the Fifth Circuit followed this month with a practical example of the Texas requirement of “presentment” of a contract claim before fees may be recovered. In Playboy Enterprises, Inc. Sanchez-Campuzano, the Court reminded that the pleading of presentment is procedural, and thus not a requirement in the federal system.  No. 12-40544  (Dec. 23, 2013, unpublished).  It is, however, a substantive requirement.  In this case, sending a “Notice of Default” under a primary obligation was enough to “present” a claim for liability on a guaranty, noting the “flexible, practical understanding” of the requirement by Texas courts. The Court distinguished Jim Howe Homes v. Rodgers, 818 S.W.2d 901 (Tex. App.-Austin 1991, no writ), which found that service of a DTPA complaint was not presentment of a later-filed contract claim, on the ground that the “Notice” here went beyond mere service of a pleading.  For thorough review of this principle, and other key points about fee awards, please consult the book “How to Recover Attorneys Fees in Texas” by my colleagues Trey Cox and Jason Dennis.)

Incentive to Interplead

New York Life v. Cannatella involved the interpleader of life insurance benefits.  The Fifth Circuit affirmed the award of $750 in attorneys fees to the insurance company who filed the action, agreeing that the company was “disinterested,” and identifying these factors about a fee award to a party in its position: “1) whether the case is simple or involved; 2) whether the stakeholder performed any unique services for the claimants or the court; 3) whether the stakeholder acted in good faith and with diligence; 4) whether the services rendered benefited the stakeholder; and 5) whether the claimants improperly protracted the proceedings.”  No. 12-30663 (Dec. 23, 2013, unpublished).

“Inextricably intertwined” attorneys fees?

Plaintiffs sued Blackburn for breach of contract with respect to three promissory notes and for fraud in a stock transaction.  Highground, Inc. v. Blackburn, No. 13-30248 (Sept. 25, 2013, unpublished).  Plaintiffs recovered on the notes but not the fraud claim, and the bankruptcy court awarded $25,000 as a “fair fee” for that result.  Plaintiffs appealed, seeking fees for the fraud claim as well, arguing that their litigation was “inextricably intertwined” with the note claims.  Applying Tony Gullo Motors I, L.P. v. Chapa, 212 S.W.3d 299 (Tex. 2006), the Fifth Circuit agreed with the lower court: “Appellants prevailed on the notes claim because Blackburn signed the notes without authority to do so, not because of the allegations of fraud relating to other aspects of the purchase agreement . . . .”  The case presents a clean example of claims against the same party that are nevertheless not “inextricably intertwined” for purposes of an attorneys fee award.  (For thorough review of this principle, and other key points about fee awards, please consult the book “How to Recover Attorneys Fees in Texas” by my colleagues Trey Cox and Jason Dennis.)

Trustee pursues estopped injury claim

The plaintiff in a personal injury case was found to be judicially estopped from asserting the claim because it was not properly disclosed in her personal bankruptcy, even though it arose post-petition.  Flugence v. Axis Surplus Ins. Co., No. 13-30073 (Oct. 4, 2013).  The trustee, however, could pursue the claim and its counsel could recover professional fees. Accordingly, the Court declined to declare that the trustee’s recovery was capped at the amount owing to creditors.  (applying Reed v. City of Arlington, 650 F.3d 571 (5th Cir. 2011) (en banc)).

Indefinite noncompete, explicit online chat, fees awarded.

In Kenyon International Emergency Services, Inc. v. Malcolm, the Fifth Circuit found no abuse of discretion in an award of attorneys fees under a Texas statute to the defendants in a suit to enforce a noncompetition agreement. No. 12-20306 (May 14, 2013, unpublished).  The Court clarified that “the key determination is [plaintiff’s] knowledge of reasonable limits, not . . . its knowledge of the reasonableness of the agreement” (emphasis in original).  As it saw the record, the plaintiff’s CEO testified that the restrictions “were worldwide, overreaching in scope of activity, and basically indefinite in time.”  The Court also reversed a sanction on the plaintiff’s lawyer related to the unsealed filing of a “sexually-explicit Internet chat,” reminding that “[i]ssuing a show-cause order is a mandatory prerequisite to imposing monetary sanctions sua sponte,” and finding that the lawyer did not have an improper purpose in making the filing and thus did not fall within Rule 11.

No fee award to successful defendants

The appellants in Texas Medical Providers v. Lakey sought $60,000 in attorneys fees after successful defense of civil rights claims about new abortion laws.  No. 12-50291 (Feb. 26, 2013, unpublished).  The Fifth Circuit rejected a request based on 42 U.S.C. § 1988, noting: “Lack of merit does not equate to frivolity . . . .”  The Court also rejected a request based on inherent power, which relied upon statements by plaintiff’s counsel that they dismissed several challenges because the initial Fifth Circuit panel had declared all future appeals in the case would be heard by the same panel.  It stated: “The short answer to this charge is that if courts treated as a willful abuse of process every self-serving statement of counsel at the expense of a judge or judges, there would be no end to sanctions motions.”