Opinion
21-41019
05-10-2024
In re: LIGHTNING TECHNOLOGIES, INC., Debtor.
Chapter 7
OPINION REGARDING THE MONETARY RELIEF PROVISIONS IN THE COURT'S CIVIL CONTEMPT ORDER AGAINST PALIOT SOLUTIONS, INC.
Thomas J. Tucker, United States Bankruptcy Judge
In the Court's Order filed on July 15, 2022 (Docket # 414, the "Contempt Order"), the Court granted the civil contempt motion filed by Palltronics, Inc., entitled "Palltronics Inc.'s Motion to Enforce Sale Order and Finding of Civil Contempt Against Paliot Solutions LLC" (Docket # 340, the "Motion" or the "Contempt Motion"). PALIoT vigorously contested the Motion. The Contempt Order was entered after extensive litigation and discovery by the parties, and two hearings. The Contempt Order was entered for the reasons stated by the Court on the record during the second hearing held on the Motion, and for the reasons stated later by the Court in the Contempt Order itself.
The Contempt Order is published. See In re Lightning Technologies, Inc., 641 B.R. 872 (Bankr. E.D. Mich. 2022).
Capitalized terms not otherwise defined in this Opinion have the meanings ascribed to them in the Motion.
See Tr. (Docket # 628) at pdf pp. 4-10; Contempt Order (Docket # 414).
In the Contempt Order, the Court awarded, among other relief, certain attorney fees and costs in favor of Palltronics and against PALIoT, and established a schedule for Palltronics to file an itemization of its fees and costs, and for PALIoT to file any objections to the itemization.
The Contempt Order described the scope of the attorney fees and costs to be awarded in this way:
Palltronics is awarded its reasonable attorneys' fees and costs related to or arising from the drafting, filing and prosecution of the Motion, which will include, but not be limited to, its reasonable fees and costs related to or arising from the discovery with LinkedIn.
Contempt Order (Docket # 414) at 4 ¶ 2.
Palltronics filed its itemization of fees and costs, which contained certain redactions in the fee itemization based on claims of privilege (Docket # 416, the "Itemization"). PALIoT filed objections (Docket # 420, the "Objections"). With leave of Court, Palltronics filed a reply to PALIoT's objections (Docket # 464, the "Reply"). The Court then ordered Palltronics to file, under seal, an unredacted copy of its fee itemization, which Palltronics then did.
Docket ## 595, 596.
The Court has carefully reviewed all of the foregoing papers filed by the parties, and the other parts of the record in this case that are relevant to the Motion. As explained below, the Court will sustain PALIoT's Objections in part, and overrule them in part. The Court now will quantify the fees to be awarded in favor of Palltronics and against PALiOT, as part of the relief being granted in favor of Palltronics on its Motion.
Palltronics seeks fees in the total amount of $97,810.70, and costs in the total amount of $1,029.40. PALIoT does not object to the costs itemization or amount, and the Court finds the itemized costs to be reasonable and within the scope of the Court's Contempt Order. So the Court will include such costs in the monetary relief it awards on Palltronics's Motion.
PALIoT does object to the fee amount itemized and requested by Palltronics, on several grounds. PALIoT contends that the fees awarded to Palltronics should be "less than $46,424.40" - specifically, $45,395.00.
See PALIoT Objections (Docket # 420) at pdf p. 5.
See Ex. A to PALIoT Objections (Docket # 420-1) at pdf p. 16.
The Court attaches to this Opinion a copy of the item-by-item objections made by PALIoT in its Objections, which was attached as Exhibit A to the Objections (Docket # 420-1). On the attached copy of PALIoT's itemized objections, the Court has made handwritten notations to indicate which of the objections are sustained ("S") and which are overruled ("O"), and the Court has crossed out fee items that the Court is disallowing as a result of sustaining objections.
After reducing the fees to reflect the sustained objections (which reduction totals $22,544.10), the Court calculates that the remaining fees total $75,266.60. The Court finds that these fees are reasonable and within the scope of the fees to be awarded, as defined in the Contempt Order.
The Court adds the following points.
First, the Court agrees, at least in part, with PALIoT's argument that at various times, the number of attorneys for Palltronics who worked on the Motion was excessive, such that not all of the attorney time is reasonable, for purposes of awarding fees under the Contempt Order. In its handwritten notations on the attached itemization, the Court has indicated which fees should be disallowed for this reason. The Court indicates this with the number "1" next to the "S" designation. The Court's approach to this objection is to allow fees for work on the Motion by no more than two attorneys, specifically, attorneys Marc Swanson and Steven Roach, and then beginning with time entries starting on April 28, 2022, attorneys Marc Swanson and Ronald Spinner.
It appears from the time entries that attorney Ronald Spinner first began working on the Motion on April 28, 2022. Attorney Steven Roach had worked on the Motion before that date, and although he also did a small amount of work on the Motion after that date, it appears from the time entries that attorney Ronald Spinner largely took over Steven Roach's role beginning on April 28, 2022. Attorney Marc Swanson worked on the Motion for the entire relevant time period, and he is the attorney who argued on behalf of Palltronics at the hearings held by the Court on the Motion.
In so ruling, the Court does not mean to minimize the value of the work done on the Motion by the other Palltronics attorneys. Nor does the Court mean to imply that the work done by the attorneys with disallowed time entries was not reasonable in the overall context of the larger and other disputes between Palltronics and PALIoT that existed at the time. Those other disputes were such that the number of attorneys working for Palltronics and the work they did may well have been reasonable in the larger context. For example, while the work on Palltronics's Motion was going on, and thereafter, Palltronics was preparing, filing, and litigating numerous claims against PALIoT other than just the claim involved in the Contempt Motion. Eventually, Palltronics filed suit against PALIoT, initially in this Court and later in the United States District Court, raising those many other claims. On June 23, 2022, Palltronics filed an adversary proceeding in this Court (Adv. No. 22-4114), which this Court eventually dismissed on abstention grounds. This Court described Palltronics's claims in that case as follows:
Palltronics then filed its lawsuit against PALIoT in the United States District Court, Case No. 2:22-cv-12854-DPH-CI, on November 23, 2022. That case remains pending.
In filing this adversary proceeding on June 23, 2022, Palltronics filed a six-count complaint against PALIoT. The complaint alleges that PALIoT, having been unsuccessful in its efforts to buy the Debtor's Assets, stole some of the Assets that were sold to Palltronics under the Final APA and the Sale Order.
Palltronics alleges that PALIoT stole the Debtor's Intellectual Property ("IP"), and the Debtor's confidential information, including proprietary information and trade secrets, in order "to set up a directly competing business to Palltronics" and to usurp any benefit Palltronics received in the bankruptcy process.
The complaint's six counts contain the following titles: Count I ("Declaratory Judgment Regarding Violation of the Sale Order"); Count II ("Misappropriation of Trade Secrets (Defend Trade Secret Act, 18 U.S.C. § 1836, et seq.)"); Count III ("Misappropriation (MCL 445.1901)"); Count IV ("Computer Fraud and Abuse Act (18 U.S.C. § 1030)"); Count V ("Unfair Competition (common law)"); and Count VI ("Intentional Interference with Prospective Economic Advantage").
"Opinion Regarding Defendant's Motion to Dismiss for Lack of Jurisdiction, or in the Alternative, for Abstention" (Docket # 81 in Adv. No. 22-4114) at 13-14 (footnote omitted). The opinion just cited is published. See Palltronics, Inc. v. PALIoT Solutions, Inc. (In re Lightning Technologies, Inc.), 647 B.R. 76, 88 (Bankr. E.D. Mich. 2022).
Second, PALIoT is correct, at least to some extent, in arguing that some of the fee time entries are for work done by Palltronics's attorneys on the larger and other claims that Palltronics made against PALIoT, described above, rather than on the Contempt Motion. The former type of work is outside the scope of the fees to be awarded under the Contempt Order. In its handwritten notations on the attached itemization, the Court has indicated which fees are being disallowed for this reason, with the number "2" next to the "S" designation. There were some time entries that included work subject to this objection, but that also included work within the scope of the Contempt Order. Some of those time entries "lumped" time together for both types of work under a single time entry, which makes it impossible for the Court to tell how much time was spent on work within the scope of the Contempt Order, as compared to work outside the scope of the Contempt Order. Such "lumped" time entries are disallowed for this reason, and designated "S-2*."
Third, with the exception of the objections the Court is sustaining, the Court rejects PALIoT's argument that the amount of time spent by Palltronics attorneys on the Motion, related briefs, discovery-related work, or other tasks in support of the Contempt Motion was excessive, and/or that the overall total of Palltronics's fees is excessive. The Court finds that it was not excessive, but rather was reasonable.
Fourth, the Court rejects PALIoT's argument that the Court should disallow fees for all time entries that contain any redactions. That is too harsh a remedy to address PALIoT's concern that the redacations may conceal objectionable time entries. To enable Palltronics to retain its claims of privilege, which the redactions sought to preserve, the Court required Palltronics to file its fee itemization in unredacted form under seal. The Court has reviewed all the redactions, in camera, and has determined which of the redacted time entries are objectionable and which are not, and has so indicated with the "O" and "S" designations.
Fifth, the Court agrees in part, and disagrees in part, with PALIoT's argument that numerous time entries reflect clerical tasks that are not properly billable as fees. PALIoT makes this argument about all of the time entries by Robin Wysocki, a paralegal, as well as several time entries of attorneys.
The parties agree that clerical work generally is not recoverable in a fee application. See, e.g., Vela v. City of Houston, 276 F.3d 659, 681 (5th Cir. 2001) (citation omitted) ("Paralegal work can only be recovered as attorneys' fees if the work is legal rather than clerical."). But the parties disagree about whether the work at issue was clerical, rather than legal in nature.
See Objections (Docket # 420) at 4-5; Palltronics Reply (Docket # 464) at 9-10.
In its handwritten notations on the attached itemization, the Court has indicated which fees should be disallowed based on this "clerical work" objection, with the number "3" next to the "S" designation. Except as so designated, the Court finds that all the other work was not merely clerical work, but rather was work which was reasonable and properly billed as attorney work and as paralegal work.
Except to the extent the Court sustains PALIoT's objections by the "S" designation on the attached itemization, the Court overules PALIoT's objections, and the Court finds that the work done by the attorneys and paralegal for Palltronics was reasonable and within the scope of compensable fees under the Contempt Order.
The Court notes that PALIoT does not object to any of the hourly rates reflected in Palltronics's Itemization. In fact, PALIoT actually adopts those hourly rates, in its own calculation of the $45,395.00 total of fees that PALIoT asks the Court to award. In any event, the Court finds all of the hourly rates reflected in the Palltronics Itemization to be reasonable.
For these reasons, the Court will enter a judgment requiring PALIoT to pay Palltronics a total of $76,296.00, consisting of fees in the amount of $75,266.60 plus costs in the amount of $1,029.40.
(Image Omitted)