Summary
In Meridian, the CEO defendant was alleged to have engaged in misconduct, including breach of his duty of loyalty and the deletion of emails belonging to the corporation that trailed his misconduct.
Summary of this case from Duro Inc. v. WaltonOpinion
1:07-cv-00995-LJM-TAB.
November 21, 2011.
ORDER
This matter comes before the Court following a hearing on defendant, Joseph Pence ("Pence"), amended application for attorneys' fees [dkt. no. 481]. The Court has considered the parties' arguments and submitted materials and rules as follows.
I. BACKGROUND
On July 12, 2010, following extensive briefing and oral argument, the Court issued an Order ("Sanctions Order") granting Pence attorneys' fees from plaintiff, Meridian Financial Advisors, Ltd. ("Meridian"), as a sanction for various misconduct. See dkt. no. 470. These sanctions were entered under Federal Rule of Civil Procedure 26 and the Court's inherent authority to sanction conduct that abuses the judicial process. Id. at 17, 22. Specifically, the Court found that Meridian committed or contributed to the commission of the following violations:
• Failure to timely disclose certain electronically stored information, including the so-called "Secret Emails"
• Failure to inform Pence's counsel that Meridian had seen or potentially had seen emails protected by attorney-client privilege provided by former co-defendant Ann Bernard under a secret cooperation agreement
• Meridian's attempted use of and attempt to garner the benefits of Erin Ray, acting as an agent for Meridian, having accessed and retrieved Pence's personal email, including potentially privileged communicationsId. at 16–17, 22. As a sanction for its conduct, Meridian was directed to "pay Pence's attorneys' fees and costs incurred in filing [the sanctions] motion and bringing Meridian's unfortunate conduct to the Court's attention." Id. at 16–17. Meridian was further precluded from using any evidence it failed to produce under Federal Rule of Civil Procedure 23. Id. at 17. However, despite Pence's request, the Court determined that dismissal of the suit was an overly severe penalty, concluding that an award of attorneys' fees and exclusion of certain evidence provided a sufficient sanction. Id. at 23.
Over the next year, the parties submitted copious briefing and evidence on the amount of attorneys' fees due to Pence as a result of the Sanctions Order, and many of Meridian's requests for additional discovery on the issue were granted. See dkt. nos. 473–74, 478–79, 481–83, 495, 500–05, 510, 512–14, 524, 527, 529, 532–35, 537–41, 545–47. In total, Pence requests $567,681.49 in attorneys' fees and costs resulting from the Sanctions Order and subsequent litigation on the fees issue. Dkt. Nos. 481, 546.
On November 7–8, 2011, the Court held a hearing on the appropriate amount of attorneys' fees. See dkt. nos. 560–61. At this hearing, the parties agreed that the fees in question can be broken down in three categories: (1) Bose McKinney Evans fees ("BME Fees") incurred between February and September 2008, (2) Price Waicukauski Riley fees ("PWR Fees") incurred between March 2009 and August 2010, and (3) all fees incurred after the Application for Fees was filed ("Fees-on-Fees"). As litigation is ongoing, Pence refused to provide Meridian with an hourly breakdown of the BME Fees, and therefore Meridian does not have all the information necessary to challenge the BME Fees. Additionally, much of the time accounted for in the Fees-on-Fees is dependent on the reasonableness of the BME Fees. Consequently, the Court ruled that only the PWR Fees can be determined at this time. The Court reserves judgment on the BME Fees and the Fees-on-Fees until the end of the litigation.
In his request for the PWR Fees, Pence contends that his attorneys spent 517.9 hours investigating and litigating the conduct set forth in the Sanctions Order, incurring $133,100.50 in attorneys' fees and $50,475.02 in expenses. Dkt. No. 473-3 ¶ 9–11. According to Jana K. Strain, Pence's counsel, this represents slightly over thirty percent of the total work performed in this case. Testimony of J. Strain. The present Order addresses the PWR Fees only.
The Court includes additional facts below as necessary.
II. DISCUSSION
When imposing sanctions, the Court must ensure that those sanctions are reasonable and proportionate to the infraction. Salgado v. Gen. Motors Corp., 150 F.3d 735, 740 (7th Cir. 1998). The Court must ensure that its award adequately sanctions Meridian for its recalcitrant behavior without requiring Meridian to pay either an excessive amount or fees unrelated to Meridian's misconduct. The Court notes that neither party challenges the reasonableness of the hourly rates for Pence's counsel"$375.00 for Mr. Waicukauski, $250.00 for Ms. Strain, and either $100.00 or $115.00 for paralegals — and the Court, therefore, concludes that these rates are reasonable. Instead, the parties disagree on the specific activities that should be covered. The Court first addresses the parties' general arguments then turns to the specific amounts requested.
In his presentation to the Court, Pence suggested that the fees award should act, in part, to punish Meridian for its unacceptable behavior. Meridian strenuously objected, contending that punishment is not a proper basis for awarding fees. Meridian further contended that any fees awarded as "punishment" would amount to a criminal contempt sanction, requiring a higher standard of review. The Court agrees that punishment is not a proper consideration for the Court in determining the fee award in this case. See Tyson v. Trigg, 50 F.3d 436, 445–46 (7th Cir. 1995). In this case, the Sanctions Order contemplates a sanction for activity that has ceased rather than a punishment to prevent future violations. Having said that, the Court finds nothing inherently improper about Pence and his counsel arguing that punishment should be considered. See, e.g., City of Valparaiso v. Iron Workers Local Union No. 395, 118 F.R.D. 466, 471 (N.D. Ind. 1987) ("Two of the most important purposes of [sanctions] are punishment and deterrence."). The Court, however, does not craft its award to punish Meridian.
At the hearing, Meridian argued that a lower award than requested is appropriate because the misconduct at issue in the Sanctions Order was perpetrated by Meridian's former counsel, not Meridian itself. The Court rejects this argument outright. As the Court noted in the Sanctions Order, non-disclosure of information was part of Meridian's overall litigation strategy, not a unilateral decision by Meridian's counsel:
For strategic reasons, [Meridian] and its attorneys decided not to let the Defendants know that [Meridian] had discovered the 'secret emails' from the OCMC hard drives and email server until the Defendants made formal discovery requests for the documents. [Meridian] believed that the Defendants thought that this evidence had been destroyed and [Meridian] wanted to lock the Defendants into sworn testimony before the existence of the emails was revealed.
Dkt. No. 470 at 6 (quoting Good Aff., dkt. no. 286-3 ¶ 27). The Court issued its Sanctions Order against Meridian, not Meridian's counsel, and the Court remains unconvinced that the misconduct at issue was the fault of Meridian's former counsel exclusive of Meridian.
Meridian, both in its briefs and at the hearing, argued that Pence's fee requests are unreasonable because they fail to apportion fees adequately. The Court shares Meridian's concern over apportioning attorneys' fees in this case. Given the Sanctions Order's admonishment that Pence be able to collect only fees "incurred in filing [the sanctions] motion and bringing Meridian's unfortunate conduct to the Court's attention," dkt. no. 470 at 16–17, Pence's total attorneys' fees must be apportioned such that he does not collect attorneys' fees incurred outside the scope of the Sanctions Order. Appointment in this case is difficult for a number of reasons, including the presence of related litigation involving the same or similar conduct, representation of multiple individuals and entities, changing of attorneys and law firms, and the involvement of former co-defendants who settled with Meridian following some of the discovery at issue in the Sanctions Order. The court observes that Pence and his counsel have made a concerted effort to limit the requested attorneys' fees to work related to investigating and litigating the Sanctions Order. See generally dkt. no. 473. Although the Court may decide that Pence is not entitled to all the fees requested, there is nothing to indicate that Pence or his counsel acted in bad faith in their attempt to separate the relevant and non-relevant fees.
Additionally, Meridian takes issue with allowing an award for any work related to Pence's Motion for Leave to File Complaint Against the Receiver, filed in related litigation. See dkt. no. 215, PNC Bank, Nat'l Ass'n v. OCMC, Inc., No. 1:06-cv-755-LJM-TAB (S.D. Ind. filed Dec. 1, 2009). However, as noted in the Court denial of that motion, the issues in the two motions are closely related, and one of the Court's reasons for declining to allow Pence to file his complaint was that "the sanctions in the related litigation adequately compensate[] Pence for the misconduct of [Meridian's] agents[.]" See PNC Bank, Nat'l Ass'n v. OCMC, Inc., No. 1:06-cv-755-LJM-TAB, 2010 WL 3782157, at *8 (S.D. Ind. Sept. 20, 2010). Although the Court agrees with Meridian that Pence cannot claim fees for unrelated sections of the motion in related litigation, because issues between the two motions significantly overlap, the Court concludes that Pence may recover fees for investigation and legal research applicable to the Sanctions Order and the related litigation at the same time.
Although fees must be apportioned based on the type of work completed and the client represented, the Court disagrees with Meridian that any apportionment should be made based on Pence's degree of success in his motion seeking sanctions. In challenging Meridian's conduct, Pence alternatively requested sanctions or outright dismissal of the case. See dkt. no. 269. Although the Court imposed sanctions, the Court declined to dismiss the case. See dkt. no. 470. However, contrary to Meridian's assertion, the lack of dismissal does not render Pence's request less successful. The Court found Meridian's conduct improper, and the Court's choice of remedy does not change Pence's victory in that regard. Therefore, no apportionment will be made based on degree of success.
Lastly, Meridian objected to Pence's use of a summary chart ("Summary Chart") [dkt. no. 473-4] showing the hours requested without dates. The Court concludes that Pence's Summary Chart is proper and may be considered. See FED. R. EVID. 1006. Pence's counsel has provided Meridian and the Court with the PWR's internal records for all entries in the Summary Chart. See dkt. no. 504-7. There is no evidence that Pence's counsel falsified the records in either the Summary Chart or the WIP. The Summary Chart contains sufficient detail for the Court to determine which entries represent reasonable fees properly within the scope of the Sanctions Order. Therefore, the Court will consider the Summary Chart.
The Court reviewed the Summary Chart and grants Pence attorneys' fees for work entries that were both reasonable and clearly related to the investigation and filing leading to the Sanctions Order. A complete list of accepted entries can be found at the Appendix attached to this Order. The Court excluded all entries that were insufficiently detailed to determine their connection to the Sanctions Order, as well as entries that the Court concludes are not within the scope of the Sanctions Order. Additionally, the Court excluded the fees requested for the depositions of Maggie Good, Michael Von Lehman, and Ann Bernard, as the Court could not determine what, if any, portions of these depositions were used for the Sanctions Order as opposed to general discovery in this litigation. In total, the Court awards Pence $76,733.50 in PWR Fees. The Court denies all other PWR Fees.
Turning to Pence's requested expenses, the Court concludes that because Rebecca Hendricks's computer consulting services were used for a number of computer issues outside the scope of the Sanctions Order, Pence is not entitled to full collection of the expenses associated with Hendricks. Therefore, the Court excludes Hendricks's expenses for travel to Pittsburgh and imaging the OCMC servers. However, the Court disagrees with Meridian that Hendricks's work is irrelevant to the Sanctions Order and, therefore, allows recovery of the expenses for Hendricks's report and conferences with Pence's attorneys. See dkt. no. 507 at PWR_000054. The Court awards Pence $8,217.00 in expenses for work done by Hendricks, as well as $2775.56 in other expenses, totaling $10,992.56 in expenses. The Court denies all other expenses requested by Pence.
In addition to the Hendricks expenses, the Court awards Pence expenses for the following entries:
• 11/2/2009 Services rendered by Jim Walsh for deposition of Erin Ray on July 9, 2009: $789.00
• 2/16/2010 Witness fee made payable to Erin Ray in February, 2010: $59.00
• 4/1/2010 Professional servises [sic] rendered by Hurley and Associates in March, 2010: $150.00
• 4/30/2009 ACBA Services, Inc. — deposition of M. Good: $1,777.56See dkt. no. 473-5 at 1.
III. CONCLUSION
For the foregoing reasons, plaintiff, Meridian Financial Advisors, is hereby ORDERED to pay to defendant, Joseph Pence, $87,726.06 in attorneys' fees and expenses incurred during his representation by Price Waicukauski Riley during the period from March 2009 until entry of the Sanctions Order on July 12, 2010. The Court reserves ruling on the Bose McKinney Evans fees, as well as all fees incurred in litigating the fee issue, until the close of litigation. A separate judgment shall issue.
Pursuant to Federal Rule of Civil Procedure 54(b), the Court, determining that there is no just reason for delay, declares this to be final judgment as to the Price Waicukauski Riley fees for the covered period.
IT IS SO ORDERED.