Opinion
Civil Action No. 3:03-CV-0522-P.
January 19, 2005
MEMORANDUM OPINION AND ORDER
Now before the Court are (1) VT, Inc.'s ("VT") Motion to Assess Attorneys' Fees, (2) GEICO General Insurance Company's ("GEICO") Request to File Adversary Submissions, or in the Alternative, Motion for Leave to Respond to Plaintiff's Motion to Assess Attorney Fees, (3) VT, World Omni Financial Corp. ("World Omni") and Autoflex Leasing — Dallas, L.P.'s ("Autoflex") Motion for Sanctions, and (4) GEICO's Motion to Strike Untimely Evidence or, Alternatively, Motion for Leave to File Sur-reply. GEICO's motion for leave to respond is unopposed and is hereby GRANTED. VT's Motion to Assess Attorneys' Fees is hereby GRANTED in part and DENIED in part. The motion for sanctions is hereby GRANTED in part and DENIED in part. GEICO's Motion to Strike Untimely Evidence or, Alternatively, Motion for Leave to File Sur-reply is hereby DENIED.
I. MOTION FOR ATTORNEYS' FEES.
VT seeks an award of its attorneys' fees under Chapter 38 of the Texas Civil Practices and Remedies Code. Chapter 38 provides that in a breach of contract case, the prevailing party may recover reasonable attorneys' fees. See Tex. Civ. Prac. Rem. Code § 38.001(8). An award of reasonable attorneys' fees is mandatory if there is proof of the reasonableness of the fees and the plaintiff has been awarded damages. See Mathis v. Exxon Corp., 302 F.3d 448, 462 (5th Cir. 2002). Although fees are mandatory, the applicant bears the burden of proving reasonableness and necessity of the hours expended. See Pelt v. U.S. Bank and Trust Nat'l Ass'n, 259 F. Supp. 2d 541, 543 (N.D. Tex. 2003). Thus, the applicant must provide sufficient documentation thereof. Id. If the documentation is vague, lacking or incomplete, the court may reduce the number of hours. Id.
VT seeks recovery of $151,078.25 for the prosecution of its claims against GEICO and for defending itself against GEICO's compulsory counterclaims prior to June 16, 2004. (Pl.'s Mot. at 7.) VT also seeks an additional $5,564.00 in fees incurred between June 16, 2004 and June 28, 2004 (the date the fee application was filed). (Pl.'s Mot. at 7.) VT estimates it will incur $59,000 in additional post-trial and appellate briefing. (Pl.'s Mot. at 7-8.)
A. Segregation of Fees.
In response, GEICO argues that VT's fee application should be denied because VT failed to segregate the costs it incurred in prosecuting its contractual claim against GEICO from the fees incurred in defending against GEICO's unrelated fraud counterclaims. (Def.'s Resp. at 3-4.) VT replies by arguing that its claims fall under the exception to the duty to segregate rule.
"A recognized exception to th[e] duty to segregate arises when the attorney's fees rendered are in connection with the claims arising out of the same transaction and are so interrelated that their `prosecution or defense entails proof or denial of essentially the same facts.'" Stewart Title Guar. Co. v. Sterling, 822 S.W.2d 1, 11-12 (Tex. 1992). "Therefore, when the causes of action involved in the suit are dependent upon the same set of facts or circumstances and thus are `intertwined to the point of being inseparable,' the party suing for attorney's fees may recover the entire amount covering all claims." Id.
VT contends that the facts and evidence of its claims and GEICO's counterclaims are so interrelated and inseparable that they fall under the exception to the duty to segregate. (Pl.'s Reply at 2.) VT cites to statements made by GEICO's own expert witnesses to support its argument. Specifically, VT notes that Robert D. Allen and Clayton E. Bailey, GEICO's attorneys' fees experts, state that they believe that "World Omni's claims and GEICO's counterclaims are so interrelated and inseparable that their prosecution and defense involve proof of essentially the same facts." (VT App. Exs. D at 4; C at 5; E at 5.)
The Court acknowledges that at first blush VT's breach of contract claim, which involved GEICO's breach of the terms of the automobile insurance policy, appears separate and distinct from GEICO's breach of contract counterclaim, which involved the terms of the dismissal documents in the state court lawsuit. However, the two claims blurred and became inseparable when GEICO interjected Autoflex and the dismissal documents into its affirmative defenses to VT's breach of contract claim. Because the Autoflex state court action became part of the breach of contract claim, the Court finds segregation of fees would be unreasonable. GEICO's own expert testimony supports this position.
B. Reduction of Fees.
1. The Bufkin Law Firm.
VT seeks $15,566.50 in fees relating to work performed by The Bufkin Law Firm, which GEICO argues should be reduced by $7891.50 to $7675.00 for the following reasons. (Def.'s Resp. at 4-5.)
a. Work Relating to the Representation of Autoflex and the Autoflex Lawsuit.
GEICO argues that VT is not entitled to recover fees for work performed on behalf of Autoflex. GEICO reasons that if Autoflex wanted to recover its attorneys' fees, it should have filed its own application for attorneys' fees. (Def.'s Resp. at 1, 5-6.) VT does not dispute this.
VT does concede that it erroneously submitted $366.00 in fees that was billed as work for Autoflex. (Pl.'s Reply at 4).
GEICO contends that VT is improperly seeking to recover $2625 in fees for work performed by The Bufkin Law Firm on behalf of Autoflex in conjunction with the Autoflex lawsuit. (Def.'s Resp. at 5.) It also contends that VT is improperly seeking to recover $3000 in fees for work done on behalf of Autoflex with respect to the motion to join Autoflex as a third-party defendant. VT does not address these specific billing entries.
After reviewing the chronology of this case and the billing records at issue, the Court concludes that the fees incurred by The Bufkin Law Firm from October 28, 2002 through February 5, 2003 were not incurred in conjunction with counsel's representation of VT in this case. Those billing entries appear to concern a "tri-party agreement." (Pl.'s App. Ex. A2 at 1.) This case was not filed until February 18, 2003. Therefore, the Court concludes that VT is not entitled to recover the $2625 billed by The Bufkin Law Firm from October 28, 2002 through February 5, 2003.
The $3000 in fees incurred by VT responding to GEICO's motion to join Autoflex as a party to the lawsuit are recoverable by VT. Because the claims are so intertwined, and because the work was performed on behalf of VT, the Court rejects GEICO's argument.
b. Legal Assistants.
GEICO argues that certain fees incurred by "legal assistants" should be stricken because VT has failed to meet the standard for establishing entitlement to fees for legal assistant work. (Def.'s Resp. at 6-7.)
Compensation for a legal assistant's work may be separately assessed and included in the award of attorneys' fees if the legal assistant performs work that is traditionally performed by an attorney. See Gill Savs. Ass'n v. Int'l Supply Co., 759 S.W.2d 697, 702 (Tex.App.-Dallas 1988, writ denied). To recover such fees, the applicant must establish the following:
(1) that the legal assistant is qualified through education, training, or work experience to perform substantive legal work;
(2) that substantive legal work was performed under the direction and supervision of an attorney;
(3) the nature of the legal work that was performed;
(4) the hourly rate being charged for the legal assistant; and
(5) the number of hours expended by the legal assistant.See id; Multi-Moto Corp. v. ITT Commercial Fin. Corp., 806 S.W.2d 560, 570 (Tex.App.-Dallas 1991, writ denied); Moody v. EMC Svcs, Inc., 828 S.W.2d 237, 248 (Tex.App.-Houston [14th Dist.] 1992, writ denied).
GEICO argues that VT seeks to recover fees for work performed by "legal assistants" SJI and EBM, yet fails to establish their qualifications. (Def.'s Resp. at 6.) In response, Richard L. Bufkin submitted a declaration identifying paralegals Elise Black McCormack (EBM) and Sherry J. Ittel (SJI) and setting forth their qualifications and the nature of the work performed by each. Both have significant experience working in the legal field and both assisted with legally substantive tasks such as reviewing documents and preparing initial drafts of pleadings and discovery. (Pl.'s Reply App. Ex. A.) This evidence is sufficient to satisfy the requisite elements.
c. Transitioning the File.
GEICO argues, and VT does not dispute, that VT may not recover fees incurred in the transition of this case from Mr. Bufkin to the Dodge Anderson law firm, because the work is not substantive legal work. Therefore, VT's fee award is reduced by $375. ( See Pl.'s App. Ex. A2.)
2. The Dodge Anderson Law Firm.
a. Legal Assistants.
(i) Paralegals.
GEICO argues that the fees incurred by paralegals and law clerks should be stricken because VT has failed to meet the standard for establishing entitlement to those fees. (Def.'s Resp. at 15-16.) Specifically, GEICO argues that VT has failed to establish the qualifications of paralegals Linda K. Fauchald and Susan E. Taplin. (Def.'s Resp. at 14.)
In response, David W. Dodge submitted a declaration setting forth the qualifications and the nature of the work performed by each paralegal. Both have significant experience working in the legal field and both assisted with legally substantive tasks such as coordinating document production and preparing initial drafts of court documents and pleadings. (Pl.'s Reply App. Ex. B.) This evidence is sufficient to satisfy the requisite elements.
GEICO also argues that certain of the paralegals' entries are merely clerical and did not involve substantive legal work. GEICO specifically challenges entries for Ms. Fauchald dated 7/3/03, 7/10/03, 7/24/03, 7/25/03, and 7/27/03. After reviewing the billing records for Dodge Anderson, the Court is unable to find any time entry for 7/3/03. With respect to the other dates at issue, the Court finds that the following fees are not recoverable and instructs Dodge Anderson to deduct the following from its fee application for non-legal work performed by Ms. Fauchald: 7/9/03 (prepare fax cover sheet), 7/10/03 (prepare fax cover sheet), 7/25/03 (file pleading). The Court further requires Dodge Anderson to deduct the following from Dodge Anderson's fee application for non-legal work performed by Ms. Taplin: 8/18/03 (letter to clerk, fax deposition notice, schedule deposition with court reporter).
(ii) Law Clerks.
GEICO also argues that law clerk fees are not recoverable under Chapter 38. The Court disagrees. To the extent that the work performed by a legal assistant, such as a law clerk, satisfies the five elements outlined in Gill, the fees are recoverable. See Gill, 759 S.W.2d at 702-03.
In his Declaration, David W. Dodge set forth the qualifications of Christina Herrera, Wes Hameline, and Jonathan Howell and the nature of the work performed by each. Christina Herrera is a recently licensed attorney and assisted with legally substantive tasks such as conducting legal research and writing assignments and assisting in witness preparation for depositions. (Pl.'s App. Ex. C.) This evidence is sufficient to satisfy the requisite elements.
Wes Hameline is a law student at Southern Methodist University and assisted with legally substantive tasks such conducting legal research and writing assignments and drafting preliminary versions of motions, briefs, and supporting documentation. (Pl.'s App. Ex. C.) This evidence is sufficient to satisfy the requisite elements.
Jonathan Howell is a law student at Southern Methodist University and assisted with legally substantive tasks such performing legal research and writing assignments. (Pl.'s App. Ex. C.) This evidence is sufficient to satisfy the requisite elements.
Dodge does not set forth any qualifications for Jeff Hawkins ($2107.50) or Susan Ormand ($600). Therefore, the fees incurred by them are not recoverable.
b. Travel Time.
GEICO argues, and VT does not dispute, that VT cannot recover fees associated with VT's counsels' travel time. (Def.'s Resp. at 17 citing Tang How Edward J. Gerrits, Inc., 756 F. Supp. 1540, 1546 (S.D. Fla. 1991).) Therefore, the Court hereby instructs Dodge Anderson to deduct $1033.50 from its fee application for non-recoverable travel time.
In sum, VT is hereby awarded $143,886.25 (prosecuting and defending claims against VT) plus $5564 (fees incurred from June 16, 2004 through date of motion) plus $59,000 in post-trial briefing if an appeal is filed in this case and if VT is successful on appeal.
The Court subtracted the following amounts from the requested amount of $151,078.25: $366 for work performed for Autoflex (conceded by VT), $1033.50 for attorney travel time; $375 for transitioning the file; $2107.50 for work performed by law clerk Jeff Hawkins; $600 for law clerk Susan Ormand; $2625 for work performed for Autoflex; and $85 for amounts billed by paralegals for non-legal work.
II. MOTION FOR SANCTIONS.
A court may award sanctions under 28 U.S.C. § 1927 when an attorney "so multiplies the proceedings in any case unreasonably and vexatiously." 28 U.S.C. § 1927. A court can award sanctions where there is evidence of bad faith, improper motive, or reckless disregard of the duty owed to the Court. See Conner v. Travis County, 209 F.2d 794, 799 (5th Cir. 2000). A court may also assess attorneys' fees through the exercise of its own inherent powers. See Chambers v. NASCO, Inc., 501 U.S. 32, 45-46 (1991). When a party "`has acted in bad faith, vexatiously, wantonly, or for oppressive reasons,'" sanctions may be imposed. Id. (citation omitted).
VT, World Omni, and Autoflex (collectively, "Plaintiffs") seek sanctions against GEICO for three acts by GEICO that Plaintiffs allege unnecessarily complicated this action. First, Plaintiffs allege that GEICO's "baseless counterclaims" against Autoflex are sanctionable. Plaintiffs also contend that GEICO's discovery practices and its filing of repeated Daubert motions constitute sanctionable conduct.
At its core, this case was a simple contract dispute with one real discrete issue for resolution — whether GEICO was required to honor the loss payee clause of the automobile insurance policy under this specific set of facts. Over its course, this case became a monstrous, unwieldy headache to which the Court and the Parties devoted massive resources. The amount of money spent by both parties litigating this dispute far exceeded the amount in controversy. Countless hours have been spent by the Court analyzing dozens of affirmative defenses, meritless counterclaims, confusing summary judgment briefing that obfuscated and paid little homage to the real issue in dispute, and volumes and volumes of appendices to all sorts of briefing. And ironically, of the thousands and thousands of documents before the Court, the Court has never laid eyes on the actual insurance policy in dispute because it is not contained in any of these filings.
This is not a good example of an attorney zealously representing his client; this is an example of litigation that has unduly burdened a system that is designed to resolve legitimate disputes. The following statement made by Clayton Bailey (counsel for GEICO) in his affidavit exemplifies how the lines have been blurred in this case:
This case implicated GEICO's business practices and procedures. Contrary to [Plaintiffs'] contentions . . . this was not a simple breach of contract case. It involved identity theft and whether GEICO had an obligation to provide coverage when individuals make blatant misrepresentations in applications over the Internet for insurance coverage. Because GEICO is doing more business day-by-day over the Internet in Texas and across the nation, the outcome of the legal issues in this matter have a global impact on how GEICO and other insurers conduct business over the Internet. For instance, whether GEICO had to provide coverage in this case could affect the steps GEICO takes in accepting applications over the Internet and could potentially increase the costs associated with writing insurance over the Internet. In short, the outcome of this case could radically change the way GEICO conducts business over the Internet. Thus, this case was more than a simple breach of contract case to GEICO.
(Bailey Aff. ¶ 16.)
Mr. Bailey concedes that this case involves a discrete legal issue — whether GEICO had an obligation to provide coverage when individuals make blatant misrepresentations in applications over the Internet for insurance coverage. He also points out that this case implicated his client's business practices and procedures. However, the fact that a legal issue may have broader business implications does not given an attorney license to inundate the opponent and the Court with arguments that are tangential at best and frivolous at worst. GEICO's assertion of excessive claims and defenses merely diverted the Court's and the Parties' attention from the real issue at bar to issues of little or no consequence and ultimately detracted the Court from its ability to adjudicate the real issue.
The Court suggests that if GEICO and Mr. Bailey wanted to aggressively pursue this case, it would have been beneficial for them to aggressively argue the single legal issue that mattered. It was an issue that deserved more attention than it received in the summary judgment briefing and that involved many complexities.
A. GEICO's Counterclaims Against Autoflex.
For purposes of this sanctions motion, the Court will consider whether GEICO should be sanctioned for asserting counterclaims against Autoflex for fraud, breach of contract, and conspiracy to commit fraud.
In its Memorandum Opinion and Order dated June 16, 2004, the Court held that all of GEICO's counterclaims against Autoflex lacked merit. The question the Court must consider at this juncture is whether GEICO's assertion of these meritless claims is sanctionable.
First, a brief recap is necessary: GEICO argued at the summary judgment stage that the dismissal documents filed by the parties in the Autoflex v. GEICO case constituted a valid contract that was breached by Autoflex when Autoflex agreed to finance and control this case for World Omni. The Court found there was no evidence that the Parties agreed that Autoflex would not enter into an agreement with World Omni to control and fund this lawsuit in World Omni's name. In fact, the undisputed evidence suggested that Autoflex intended for World Omni to file this lawsuit for Autoflex's benefit. Autoflex's Motion for Voluntary Dismissal stated that Autoflex did not intend for the dismissal to affect World Omni's right to pursue the claim against GEICO or to affect Autoflex's rights to the proceeds.
Specifically, the Autoflex's Motion for Voluntary Dismissal stated that Autoflex did not intend for the dismissal to "effect [sic] its rights to the [insurance] proceeds of the claim when properly pursued by the named insured, World Omni Financial Corp." Autoflex also stated in its Motion for Voluntary Dismissal that "World Omni Financial Corp. has . . . confirmed its obligation and willingness to pursue the claims under the policy, which it legally owns, but the benefits of which are conferred upon the Plaintiff [Autoflex] here." Autoflex also requested that "the dismissal be without prejudice to its right in the proceeds of a proper prosecution of the subject claims, however, with prejudice to the refiling of suit on such claim and policy in its own name." ( See Court Order at 24-28.)
GEICO argued in its fraud counterclaim that Autoflex made a misrepresentation by stating in its dismissal documents that Autoflex was dismissing its claims against GEICO with prejudice to `refile same or any part thereof, . . .' and subsequently bringing, controlling and funding this lawsuit against GEICO in the name of World Omni. GEICO also argued that when World Omni agreed to act on behalf of Autoflex in this lawsuit, a conspiracy between the two occurred. The Court found that the undisputed evidence showed that Autoflex did dismiss its own claims against GEICO with prejudice, just as the dismissal documents represented. In fact, the court documents explicitly stated that Autoflex did not intend for the dismissal to affect World Omni's right to pursue the claim against GEICO or to affect Autoflex's rights to the proceeds.
There was no credible evidence to support GEICO's arguments, and in fact, all credible evidence was to the contrary. GEICO attempts to persuade the Court that GEICO and Autoflex's agreement to dismiss the case with prejudice meant that neither Autoflex nor World Omni would pursue the case. The evidence simply does not support this argument. Nor does common sense.
The Court finds that the positions taken by GEICO in its counterclaims were untenable. They were not legitimate legal arguments, and the Court is left to conclude that GEICO's motivation in asserting these claims was not to present valid disputes for resolution, but rather was based on some sort of bad faith, improper motive or reckless disregard of the duty owed to the Court.
For these reasons, the Court hereby GRANTS Plaintiffs' Motion for Sanctions on these issues and awards Autoflex legal fees in the amount of $11,829.00.
B. Discovery Abuse.
VT and World Omni argue that GEICO engaged in sanctionable discovery abuse by (1) producing a corporate representative who was unable to testify on certain designated topics, then (2) refusing to produce a witness who could testify on those topics, and then (3) filing a motion to quash (which was denied) — all of which delayed the discovery for three months and caused Plaintiffs' expert to file a supplemental report because the information was unavailable at the time of her initial report.
Magistrate Judge Paul D. Stickney presided over the motion to quash. While it appears that GEICO's basis for the motion to quash was weak, Judge Stickney held each party responsible for its own expenses with respect to the continuation of the deposition and with respect to making and responding to the motion. Apparently, Judge Stickney believed this was not a situation that would warrant sanctions. There is no evidence before the Court that GEICO acted vexatiously or in bad faith with respect to this discovery dispute. Therefore, the Court hereby DENIES Plaintiffs' motion for sanctions based on discovery abuse.
C. Repeated Daubert Motions.
VT and World Omni seek sanctions for GEICO's third Daubert motion against Plaintiffs' expert — a motion VT and World Omni contend was untimely and excessive. GEICO's third Daubert motion was filed as a challenge to information learned by Plaintiffs' expert during her deposition. GEICO was entitled to challenge her testimony. This conduct was not sanctionable.
CONCLUSION
Therefore, for the reasons stated herein, GEICO's motion for leave to respond is hereby GRANTED. VT's Motion to Assess Attorneys' Fees is hereby GRANTED in part and DENIED in part. The motion for sanctions is hereby GRANTED in part and DENIED in part. GEICO's Motion to Strike Untimely Evidence or, Alternatively, Motion for Leave to File Sur-reply is DENIED.
On October 12, 2004, Plaintiffs filed a surreply in response to the statements contained in GEICO's recently unsealed affidavit. GEICO filed a Motion to Strike Untimely Evidence or, Alternatively, Motion for Leave to File Sur-reply. GEICO argues that the exhibits attached to Plaintiffs' reply brief should be stricken because they violate Local Rules 7.1 and 7.2. In the alternative, GEICO contends that it should have an opportunity to respond to the newly disclosed documents. The Court, in coming to its determination in this Order, did not rely on the information contained in Plaintiffs' surreply and therefore, GEICO's motion is DENIED.
It is SO ORDERED.