United States District Court, D. Arizona
ORDER
DOMINIC W. LANZA UNITED STATES DISTRICT JUDGE
Pending
before the Court is Defendant Vaughn Wilhelm's motion for
attorneys' fees and costs (Doc. 167), which Plaintiffs
oppose (Doc. 174). For the following reasons, the motion will
be granted in part and denied in part. The Court will award
$23, 275 in attorneys' fees and $1, 417.76 in costs, to
be assessed jointly and severally against Plaintiffs and
Plaintiffs' counsel.
BACKGROUND
This
lawsuit was filed in April 2017. (Doc. 1.) In a nutshell, the
operative complaint (Doc. 62) alleged that five
defendants-Wilhelm, Ryan McHugh, Eversource Capital LP,
Eversource Group, LP, and Eversource Global Technology
LLC-misappropriated Plaintiffs' trade secrets related to
the “devulcanization” of rubber, improperly hired
Plaintiffs' former chief scientist in China, and
tortiously interfered with Plaintiffs' contractual and
business relationships. (See generally Doc. 79 at
2-3.) However, Plaintiffs later agreed to voluntarily dismiss
many of these claims and defendants. (Docs. 130, 173.)
On
March 8, 2019, the one remaining defendant (Wilhelm) filed a
motion for sanctions under Rule 37. (Doc. 134.) The motion
was filed in response to Plaintiffs' production, one week
earlier, of a “supplemental” MIDP disclosure that
greatly expanded Plaintiffs' damage theories. In a
nutshell, Wilhelm argued that (1) this late disclosure was
improper because Plaintiffs were required to disclose their
damage computations at the outset of the case, not on the eve
of the discovery cutoff, and (2) this late disclosure was
prejudicial because, had Wilhelm been aware of
Plaintiffs' various damage theories at the start of the
case, he would have conducted additional discovery and/or
hired additional experts. As a remedy, Wilhelm argued that
“sanctions in the form of exclusion of any evidence
supporting damages identified in Categories 1, 3, 4, 5, and 6
are appropriate.” (Id. at 6.) In the final
paragraph of the motion, Wilhelm also included a request for
“monetary sanctions in the form of attorneys fees
incurred in briefing this motion” and “any other
relief the Court deems to be just and proper.”
(Id. at 11.)
On June
17, 2019, after hearing argument from the parties, the Court
issued an order that granted in part, and denied in part,
Wilhelm's motion. (Doc. 151.) Although the Court
concluded that Plaintiffs' initial disclosure in January
2018 was inadequate, the Court also noted that Wilhelm
“didn't raise any concerns about the sufficiency of
Plaintiffs' damage-related disclosures until February
2019-13 months after they were initially provided” and
that “Plaintiffs' counsel promptly addressed those
concerns and provided detailed computations . . . within 10
days of the request.” (Id. at 5-6.) The Court
next held that, although Plaintiffs' counsel made an
array of inaccurate and misleading statements to
Wilhelm's counsel during the discovery process about two
particular categories of damages, those statements should not
be viewed “as some sort of intentional attempt to
mislead” (id. at 9) and “were not the
product of ‘bad faith'” (id. at 12).
Given this backdrop, the Court concluded “it would be
improper to strike Plaintiffs' damage claims due to
untimely disclosure” and that “other options are
available here . . . to make Wilhelm whole.”
(Id. at 6, 9.) As examples of such “other
options, ” the Court noted that it might be appropriate
(1) to retroactively extend the expert-disclosure deadline so
Wilhelm could hire a damages expert, (2) to allow Wilhelm to
conduct “additional fact discovery” concerning
the late-disclosed damage theories, and/or (3) to require
Plaintiffs to pay for the costs associated with any
additional discovery. (Id. at 9, 12.) The Court thus
ordered the parties to meet-and-confer about, inter
alia, “what additional steps Wilhelm would need to
pursue to cure the prejudice arising from [the misleading
statements], how much such steps would cost, and who should
bear the associated expense.” (Id. at 12.)
On July
8, 2019, the parties filed a “Joint Written Memorandum
Regarding Remedies.” (Doc. 159.) This document reported
that Plaintiffs had decided, following the issuance of the
June 17 order, to voluntarily dismiss all but one of their
damage claims (the negligence claim against Wilhelm for
purportedly wasting chemicals through negligent mixing).
Nevertheless, Wilhelm argued that Plaintiffs' dismissal
of these claims would not make him whole and stated he should
be awarded four categories of expenses- specifically, the
fees and costs he incurred (1) when briefing and arguing the
Rule 37 motion, (2) when responding to Plaintiffs'
counsel's misleading statements, (3) when preparing a
never-filed summary judgment motion on one of Plaintiffs'
now-withdrawn damage claims, and (4) when pursuing discovery
concerning some of Plaintiffs' now-withdrawn damage
claims. (Id. at 3.)
On July
25, 2019, the Court issued an order that granted in part, and
denied in part, Wilhelm's request. (Doc. 164.) This order
concluded that Wilhelm was entitled to recover the first
category of expenses mentioned in the joint memorandum-the
costs and fees he incurred when briefing and arguing the Rule
37 motion. (Id. at 3 [“[T]he Court already
granted [Wilhelm's] Rule 37 motion in part and Plaintiffs
subsequently agreed to abandon their late-disclosed damage
theories. All of this suggests that [Wilhelm] was justified
in seeking relief under Rule 37, that Plaintiffs' conduct
wasn't substantially justified, and that it wouldn't
be unjust to require Plaintiffs to reimburse [Wilhelm] for
the cost of seeking relief.”].) The order further
directed Wilhelm to file a separate motion identifying the
specific fees and costs to which he believed he was entitled.
(Id. at 4-5.)
ANALYSIS
A.
The Parties' Arguments
Wilhelm
requests a total of $27, 529.50 in fees and $2, 599.16 in
costs. (Docs. 167, 168.) In support of his fee request,
Wilhelm has submitted timesheet entries showing that one of
his attorneys, John McHugh, spent 39.9 hours on the Rule 37
motion at a rate of $500 per hour; that a second attorney,
William Thomas, spent 12.7 hours on the Rule 37 motion at a
rate of $335 per hour; and that a third attorney, Candice
McHugh, spent 13.3 hours on the Rule 37 motion at a rate of
$250 per hour. (Doc. 168-3.) Wilhelm argues these hourly
rates are reasonable for the Phoenix market (even though his
attorneys are not based in Arizona) because (1) they are
similar to, and in some instances fall below, the rates
approved in other District of Arizona cases for
similarly-experienced attorneys, (2) this case initially
involved complex state and federal trade-secret claims and a
demand for nine-digit damages, so it was reasonable to retain
counsel who “specialize in high-figure complex
commercial litigation and trade secret matters, ” and
(3) his attorneys have submitted declarations verifying that,
“in spending time on this matter, [they] were precluded
from spending that time on matters for other clients who paid
the same rates.” (Doc. 168 at 4-5.) Wilhelm has also
submitted a declaration from a partner at a Phoenix law firm,
who avers that “[t]he rates requested in this
application are . . . in line with rates charged in the
Phoenix market by private attorneys of an ability and
reputation comparable to that of prevailing counsel with
respect to legal work on similar complexity.” (Doc.
168-9 ¶ 4.) As for the number of hours expended, Wilhelm
argues they were reasonable because (1) they are supported by
contemporaneous billing records, (2) his attorneys have
submitted declarations averring they exercised billing
judgment, and (3) his attorneys' work on the Rule 37
motion was obviously effective, because it prompted
Plaintiffs to dismiss all but one of their claims and to
withdraw 99.5% of the damages they previously sought.
(Id. at 5-6.) In support of his cost request,
Wilhelm has submitted a spreadsheet showing that all three of
his attorneys flew to Phoenix to attend the June 17 hearing.
(Doc. 168-4.) He seeks reimbursement for the airfare,
lodging, meals, parking, and ground transportation associated
with their travel, as well as for the meal of a former
co-defendant who attended the hearing. (Id.)
Finally, Wilhelm argues that Plaintiffs' counsel should
be held jointly and severally liable for the overall award
because counsel exacerbated the situation by arguing at
length in the written response to the Rule 37 motion that
counsel's initial damage disclosures were adequate, only
to abandon this position during the hearing. (Doc. 168 at
7-8.)
In
their response (Doc. 174), Plaintiffs take issue with several
aspects of Wilhelm's request. First, Plaintiffs observe
that, in the joint memorandum, Wilhelm estimated that he
would be requesting a total of just over $19, 000 in fees and
costs, yet Wilhelm is now requesting over $30, 000 in fees
and costs without any explanation for why the figure has
increased by 55%. (Id. at 3-4.) Second, Plaintiffs
argue the fee request is overbroad because the Court denied
the Rule 37 motion in significant part (i.e., by not
accepting Wilhelm's invitation to strike Plaintiffs'
damage claims as a remedy for the discovery violations), yet
Wilhelm is seeking reimbursement for 12.3 hours of attorney
time spent researching and developing the unsuccessful
portions of the Rule 37 motion. (Id. at 4-5.) Third,
Plaintiffs challenge the $500 hourly rate charged by Mr.
McHugh, arguing it is “unreasonable in the Arizona
community” because Mr. McHugh is based in Denver and
works at a law firm that has fewer attorneys than the law
firms whose $500 hourly rates have been approved in other
District of Arizona cases. (Id. at 5-7.) Plaintiffs
contend that a more reasonable hourly rate for Mr.
McHugh's work would be $345, which is “consistent
with the State Bar of Arizona's 2016 Economics of Law
Practice in Arizona survey of hourly rates for partners
with 10 years of practice, like Mr. McHugh.”
(Id. at 7.) Fourth, Plaintiffs challenge the $250
hourly rate charged by Ms. McHugh, arguing that her timesheet
entries show that her “work was primarily limited to
simple work that could have been performed by a
paralegal” and that her area of specialization (water
law) is irrelevant to the issues in this case. (Id.
at 7-8.) Fifth, Plaintiffs argue the overall number of hours
expended by Wilhelm's attorneys on the Rule 37 motion-66
hours-was unreasonable because the motion “[w]as [n]ot
[c]omplicated, ” “the expenditure of nearly 70
hours of attorney time for a single motion is facially
unreasonable, ” and it was unnecessary and duplicative
for all three of Wilhelm's attorneys to work on the
motion and attend the hearing. (Id. at 8-11.) Sixth,
Plaintiffs challenge several of the time entries as being
“insufficiently descriptive” under Local Rule
54.2(e)(2). (Id. at 11-13.) Seventh, Plaintiffs
argue the cost request is excessive because it wasn't
necessary for all three attorneys to attend the hearing.
(Id. at 13.) Eighth, Plaintiffs argue their counsel
shouldn't be held jointly and severally liable because
(1) the Court expressly declined, in its previous order, to
make a bad-faith finding as to counsel, (2) an award of Rule
37 sanctions against counsel must be based on misconduct
during the discovery process, but the alleged misconduct here
arose during the hearing, and (3) counsel did not make the
sort of concession alleged in Wilhelm's motion.
(Id. at 13-15.)
In his
reply-which exceeds the page limits applicable to reply
briefs, see LRCiv 7.2(e)(2)-Wilhelm argues that
Plaintiffs' first objection is baseless because the $19,
000 figure was only an estimate and didn't include the
6.6 hours of time later expended on related issues. (Doc. 177
at 2-3.) As for the second objection (overbroad fee request),
Wilhelm argues, inter alia, that all of the entries
in the spreadsheet involve time spent preparing and/or
arguing the Rule 37 motion and the challenged entries were
actually related to the fee request, not the other remedies
that weren't awarded. (Id. at 3-4.) As for the
third objection (Mr. McHugh's $500 hourly rate), Wilhelm
notes that Plaintiffs didn't submit any evidence to
controvert the declaration from Mr. Matura concerning Phoenix
billing practices, argues that the survey cited in
Plaintiffs' brief is flawed and has been rejected by
other courts, and contends it would be irrational to conclude
“that the size of the firm (rather than the experience
of counsel) determines the market rate.” (Id.
at 4-5.) As for the fourth objection (Ms. McHugh's $250
hourly rate), Wilhelm contends that the rate is actually
“[s]ignificantly [b]elow [m]arket” given Ms.
McHugh's two decades of experience, that Ms. McHugh's
participation was necessary in light of her institutional
knowledge of the case, that Plaintiffs have improperly
rephrased or misquoted her timesheet entries in an attempt to
minimize the complexity of her work, and that Plaintiffs
haven't submitted any evidence demonstrating her rate is
unreasonable. (Id. at 5-7.) As for the fifth
objection (unreasonable number of hours expended), Wilhelm
argues that the Rule 37 motion involved extensive briefing,
that it was reasonable to expend a significant amount of time
on the motion given the amount of damages being sought, and
that it was reasonable to have multiple attorneys work on the
motion and attend the hearing in light of Plaintiffs'
counsel's track record of making inaccurate statements
during hearings. (Id. at 7-10.) As for the sixth
objection (inadequate billing entries), Wilhelm argues that
the challenged entries are similar to entries that have been
approved in other District of Arizona cases and that the
entries are, in any event, sufficiently descriptive.
(Id. at 10-12.) As for the seventh objection
(costs), Wilhelm again defends his decision to have multiple
attorneys attend the hearing and further argues it was
reasonable to seek reimbursement for the meal of a former
co-defendant who attended ...