Articles Posted in Attorneys Fees and Sanctions

When specific and identifiable litigation becomes reasonably foreseeable, those likely to be involved in the litigation and with awareness of their likely involvement have a duty to preserve potentially relevant evidence. Failure of such a party to take reasonable steps to preserve the evidence–or intentional alteration, concealment, or destruction of evidence–is known as “spoliation of evidence” (often misspelled as “spoilation of evidence,” which is not a thing) and can result in severe sanctions if other litigants are prejudiced by their inability to use the missing evidence at trial. (See Va. Code § 8.01-379.2:1) Typically, the court will instruct the jury that it may (or must) presume that the evidence–had it been preserved–would have been unfavorable to the party who failed to preserve it. Sometimes, however, in particularly egregious circumstances, the court can dismiss the action (if the plaintiff is guilty of spoliation) or enter a default judgment (if spoliation was committed by the defendant).

Case in point: QueTel Corp. v. Hisham Abbas, No. 18-2334 (4th Cir. (Va.) July 16, 2020). QueTel brought this action against Hisham Abbas, Shorouk Mansour, and Finalcover, LLC, for misappropriation of trade secrets, copyright infringement, and other claims. The gist of the lawsuit was that Abbas–a former QueTel employee–allegedly stole source code from QueTel’s copyrighted software (TraQ Suite 6) and used it in a competing product (CaseGuard). QueTel sent the defendants a cease-and-desist letter in which it demanded that they:

  1. cease infringing on QueTel’s intellectual property including the source code underlying the TraQ Suite 6 software;
  2. cease all advertising, promotion, and sale of the CaseGuard software;
  3. provide an accounting of all sales of the CascGuard software made to date; and
  4. allow QueTel to copy and inspect a complete copy of all versions of the CaseGuard source code as well as any computers that Abbas used during the period from January l, 2014 to the present.

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Virginia courts are not fond of awarding attorneys’ fees in litigation, even to the prevailing party. The general rule in this country is that litigants are responsible for their own attorneys’ fees unless a contract or statute says otherwise. Even if you win a case, you still have to pay your lawyer and can’t force the losing party to reimburse you. Even if a statute authorizes recovery of legal fees, the judge will have discretion to determine the amount. Most statutes that allow recovery of legal fees only allow recovery of a “reasonable” amount, so if the judge feels that no amount of fees would be reasonable to assess against the other side, then no fees will be awarded. Let’s check out a recent case from Fairfax County.

Robert M. Swahn, Jr. v. Nouman Hussain was a dispute between neighbors. Before addressing the issue of whether one of the parties could recover legal fees as the “prevailing party” in the litigation, the court characterized the case (in the very first sentence of the opinion) as one in which “everyone loses.” You know you’re not getting an award of attorneys’ fees when the judge calls you a loser.

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Litigation tactics designed to bully, harass, intimidate, or embarrass an opponent or opposing counsel are not permitted in Virginia courts. While litigants may gain great satisfaction from the knowledge that their lawsuit or counterclaim is causing the other side a great deal of expense and inconvenience, if the primary goal of the litigation is to cause pain, rather than vindicate legitimate legal rights, courts have the authority to impose sanctions. Notably, this is true even if the claim has merit. So held the Virginia Supreme Court on November 12, 2015, in Kambis v. Considine.

Most lawyers associate Va. Code § 8.01-271.1 (the state-level equivalent of Rule 11 of the Federal Rules of Civil Procedure) with frivolous pleadings – pleadings completely devoid of merit, unsupported by any foundation in law or fact, and having no reasonable chance of success. Lawyers know that if they file a complaint based on fanciful factual allegations and outdated legal citations, they can be sanctioned and ordered to reimburse the other party for legal fees incurred in having to respond. What’s noteworthy about the Kambis case is that it focused on the “improper purpose” prong of the sanctions test and clarified that sanctions may be awarded even if a pleading presents a valid claim fully supported by the facts and the law.

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Virginia lacks an anti-SLAPP statute, but that doesn’t mean filing a frivolous lawsuit focused on eliminating criticism rather than enforcing actual legal rights can’t result in being ordered to reimburse the defendant’s legal fees. Some creative plaintiffs, finding themselves the subject of online criticism but not wanting to sue for defamation either because of an inability to satisfy the elements of the actionable libel or slander or because of other potential problems with bringing a defamation claim, have resorted to copyright law in pursuit of their goals. But as demonstrated by a recent decision of the Western District of Virginia, if the plaintiff has no valid copyright-infringement claim and/or takes unreasonable positions (either in making arguments to the court or in the process of settlement negotiations), the court has the authority not only to dismiss the case but to order the plaintiff to pay the defendant a reasonable amount of attorneys’ fees.

In Ergun M. Caner v. Jonathan Autry, the court found that “Plaintiff filed a copyright infringement suit to stifle criticism, not to protect any legitimate interest in his work” and ordered him to pay Mr. Autry $34,389.59 in attorneys’ fees and costs. The court described the facts of the case essentially as follows:
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The allegations in Autopartsource, LLC v. Bruton presented a fairly egregious case of stolen trade secrets. Due to a defendant’s failure to answer, those allegations were deemed true. As remedies, Autopartsource sought $1,131,801.55 in compensatory damages, $350,000 in punitive damages (the statutory maximum), $59,409.72 in attorneys’ fees and costs, a worldwide production injunction to last seven years, and a permanent injunction prohibiting the use of Autopartsource’s trade secrets. The court held an evidentiary hearing and ruled that while Autopartsource was entitled to an injunction and substantial damages, the scope of the requested injunction would be narrowed and the damages would be reduced.

Autopartsource designated employee Stephen Bruton to spearhead the company’s effort to develop business in China, where it sources its automobile parts. Bruton secretly developed his own competing business, BBH Source Group, and misappropriated Autopartsource’s trade secrets in doing so, using them to redirect prospective Autopartsource customers to BBH. After Autopartsource discovered Bruton’s actions and fired him, Bruton broke into an Autopartsource facility and deleted proprietary information from its database.

Autopartsource sued for violation of the Virginia Uniform Trade Secrets Act, tortious interference with business expectancy, and tortious interference with contract. The court found that Autopartsource had established liability on all three theories but that, under Virginia law, it could not recover damages under both VUTSA and its claim for tortious interference with business expectancy, as a party cannot receive damages for a common law tort if the underlying conduct involves an intentional misappropriation of a trade secret.

Spoliation of evidence can result not only in an adverse inference instruction to the jury, but in an award of attorneys fees and expenses incurred in proving the spoliation. As demonstrated by the contentious trade secret litigation between E.I. DuPont de Nemours and Company and Kolon Industries, Inc., those fees and expenses can be substantial.

Several months ago, the court found that several key Kolon employees had intentionally deleted relevant emails, hampering DuPont’s ability to present and prove its case. As a result, the court granted DuPont’s request to instruct the jury that it could assume the destroyed evidence contained information damaging to Kolon. DuPont won the case, then sought an award of fees and expenses incurred in connection with proving the spoliation.

The court noted that DuPont had engaged in a “long, and oftentimes tortuous, journey” to discover emails Kolon had deleted and documents it had destroyed. Complicating DuPont’s burden was what the court called Kolon’s “overall obfuscatory conduct.” Still, DuPont had to prove the reasonableness of the fees requested.

If you’re going to file a lawsuit against someone, you’d better explain the basis for it. A complaint doesn’t need to include much detail, but it must at least allege facts showing that you’ve been wronged and that you are entitled to a remedy of some sort. In federal court, you must also demonstrate a basis to invoke the court’s jurisdiction. Failure to do so can result in monetary sanctions.

Take the case of Michael Harris v. Jeffrey Seto, brought in the Harrisonburg Division of the Western District of Virginia. Michael F. Harris and his company, M. F. Harris Research, Inc., filed a complaint against Jeffrey K. Seto, Matthew S. Johnson, and others, alleging fraud, breach of fiduciary duty, and corporate diversion. Harris stated in conclusory fashion that Seto and others defrauded him by scheming to take over his company and steal confidential information and business opportunities.

The complaint consisted of a two-page handwritten document. (Hint: that’s not the best way to make a good first impression with the judges). The complaint alleged nine counts but did not set forth the factual basis supporting them. According to the civil cover sheet filed with the complaint, Harris asserted the court’s jurisdiction was based on a federal question. He checked boxes describing the case as being in the nature of “Assault, Libel & Slander,” “Property Damage Product Liability,” and “Patent.” Defendant Johnson was the only defendant served and he wisely moved to dismiss the action for failure to state a claim.

Russell Lee Ebersole recently won a $45,000 judgment in a case for defamation and business conspiracy, racking up over $135,000 in attorney fees to obtain it. In September, Judge Cacheris ruled that only around $80,000 of the incurred fees were reasonable, and awarded fees to the plaintiff accordingly. Alas, it appears that Mr. Ebersole is never going to see any of this money, because he owes the government–which timely perfected its restitution lien–over $700,000.

Shortly after the judgment was entered, the government applied for a Writ of Continuing Garnishment to enforce its lien against the proceeds. Ebersole’s lawyers intervened and objected, claiming that the superpriority of their attorney’s lien (under 26 U.S.C. § 6323(b)(8)) applied to all fees billed to their client, not just the amount deemed reasonable by Judge Cacheris.

The priority of a federal lien based on an order of restitution is generally determined by who got there first, i.e. “first-in-time, first-in-right,” and the government’s lien was filed first. But there is an exception to that rule. An attorney’s lien “to the extent of his reasonable compensation for obtaining such judgment” enjoys superpriority status under 26 U.S.C. § 6323(b)(8). seize-money.jpgRegulations interpret “reasonable compensation” as the amount customarily allowed under local law for similar legal work based on the individual case circumstances.

The Laffey Matrix is used as a guideline for reasonable attorney fees in the Washington-Baltimore area. An updated version is available that adjusts the rates for the high cost of living. Virginia courts are not bound by the Laffey Matrix, but the Fourth Circuit has indicated that the Laffey matrix is a “useful starting point to determine fees.” The Laffey Matrix was further modified in Grissom v. Mills Corp., 549 F.3d 313, 323 (4th Cir. 2008), where it was adjusted specifically for Northern Virginia and presented in a form that has come to be known as the Grissom Table. In a recent federal-court decision, Judge Cacheris considered all three guidelines prior to awarding the plaintiff $75,832.73 of the $131,598.25 sought.

In Ebersole v. Kline-Perry (discussed earlier here in connection with the court’s slashing of the jury’s award of punitive damages), the court began its analysis by determining the “lodestar amount” – the product of a reasonable fee and a reasonable hourly rate. Federal courts sitting in Virginia consider twelve “Johnson/Kimbrell” factors for guidance in determining reasonableness, which Judge Cacheris noted encompass the factors normally relied upon by Virginia state courts in awarding fees in business-conspiracy cases.

Those factors are: (1) the time and labor expended; (2) the novelty and difficulty of the questions raised; (3) the skill required to properly perform the legal services rendered; (4) the attorney’s opportunity costs in pressing the instant litigation; (5) the customary fee for like work; (6) the attorney’s expectations at the outset of the litigation; (7) the time limitations imposed by matrix.jpgthe client or circumstances; (8) the amount in controversy and the results obtained; (9) the experience, reputation and ability of the attorney; (10) the undesirability of the case within the legal community in which the suit arose; (11) the nature and length of the professional relationship between attorney and client; and (12) attorneys’ fees awards in similar cases.

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