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In re Outsidewall Tire Litigation

United States District Court, E.D. Virginia, Alexandria Division

April 7, 2016

IN RE: OUTSIDEWALL TIRE LITIGATION

MEMORANDUM OPINION

T. S. ELLIS, III UNITED STATES DISUICT JUDGE.

At issue on remand from the Fourth Circuit in this copyright infringement and conversion case is the proper quantum meruit analysis of the fee award to which plaintiffs' former counsel is entitled and the proper contract analysis of the costs to which plaintiffs' former counsel is entitled. The dispute is between (i) plaintiffs, who won a final and now-affirmed $26 million judgment against various foreign corporations, [1] and (ii) Gilbert LLP (the "Gilbert Firm"), plaintiffs' former counsel, over the value of the latter's lien for fees and expenses, filed pursuant to Va. Code § 54.1-3932. This is, in essence, a fee dispute between a law firm and the firm's former clients. It arises because post-judgment, but prior to the completion of the appeal, two former Gilbert Firm attorneys who led the effort to win the judgment-August Matteis and William Copley-left the Gilbert Firm to form their own law firm, Weisbrod, Matteis & Copley PLLC ("WMC"). When this occurred, plaintiffs elected to discharge the Gilbert Firm as plaintiffs' counsel and instead to retain WMC as plaintiffs' counsel. Thereafter, the Gilbert Firm, based on its fee contract with plaintiffs and the work it had performed on the case, filed a lien in this district for fees and expenses under Va. Code § 54.1-3932, claiming more than $4.5 million in fees plus a share of the moneys received from the judgment collection efforts, and more than $1.8 million in costs and expenses. Plaintiffs subsequently filed a motion to determine the value of the Gilbert Firm's lien, and on September 29, 2014, a Memorandum Opinion and Order issued granting plaintiffs' motion inasmuch as the reasonable value of the Gilbert Firm's lien was determined to be $1, 958, 341.67-$1, 237, 720 in attorney's fees and $720, 621.67 in costs. In re Outsidewall Tire Litigation, 52 F.Supp.3d 777, 795 (E.D. Va. 2014) ("Outsidewall I"). The Gilbert Firm appealed, and the Fourth Circuit vacated and remanded the fees and costs determination reflected in Outsidewall I on the grounds that it: (i) did not expressly apply the factors for quantum meruit fee awards set forth by the Supreme Court of Virginia in County of Campbell v. Howard, 112 S.E. 876, 885 (Va. 1922), and (ii) erroneously applied a quantum meruit analysis to the costs issue instead of enforcing a costs provision in the parties' contract. Thereafter, the parties, as directed, filed supplemental briefs to aid resolution of the matter on remand. As the matter has been fully briefed and argued orally, the matter is now ripe for disposition.

I.[2]

Plaintiffs in the underlying case are (i) Jordan Fishman, a Florida citizen, and three companies he owns and controls, namely (ii) Tire Engineering and Distribution, LLC, a Florida Company, (iii) Bearcat Tire ARL LLC, also a Florida company, and (iv) Bcatco A.R.L., Inc., which is incorporated under the laws of the Jersey Channel Islands. During times relevant to this litigation, plaintiffs were in the business of designing, manufacturing, and selling highly specialized tires for use on underground mining vehicles.

There were two sets of defendants in the underlying litigation. The first set, collectively referred to as the "Al Dobowi defendants, " comprises: (i) Al Dobowi Tyre Co. LLC, (ii) Al Dobowi Ltd, (iii) TyreX International, Ltd., and (iv) TyreX International Rubber Co., Ltd., all of which were headquartered in the United Arab Emirates and owned by Surender Kandharia, a Dubai citizen. The second set of defendants, collectively referred to as the "Linglong defendants, " comprises (i) Shandon Linglong Rubber Co., and (ii) Shandong Linglong Tire Co., Ltd., both of which were incorporated in China. At all relevant times, the Dobowi and Linglong defendants were engaged in the business of designing, manufacturing, and selling rubber tires, including underground mining tires.

By 2009, Jordan Fishman had become convinced that his head of sales had conspired with plaintiffs' competitors, the Al Dobowi and Linglong defendants, to steal plaintiffs' copyrighted underground mining tire blueprints and designs and then to sell knock-off copies of plaintiffs' tires around the world, thereby damaging plaintiffs. Accordingly, Fishman sought counsel to vindicate plaintiffs' rights, and on August 4, 2009, Fishman signed an Engagement Letter with the Gilbert Firm. This Engagement Letter, drafted by the Gilbert Firm, provides for two alternative fee arrangements, specifically as follows:

(i) in the event that the Gilbert Firm represented plaintiffs through resolution of the dispute, the Engagement Letter provides that plaintiffs would pay the Gilbert Firm a contingency fee equal to 40% of the gross amount of any sum recovered, and plaintiffs would reimburse the Gilbert Firm for "all costs and expenses related to this matter from the gross amount received by it"; or
(ii) in the event plaintiffs terminated the Gilbert Firm's representation of plaintiffs prior to the resolution of the dispute, the Engagement Letter includes a termination provision, which provides that the Gilbert Firm "will be entitled to a fee based upon the hours expended by the Firm on this representation at the hourly rates normally charged by the involved personnel for the type of work rendered" and that plaintiffs will reimburse the Gilbert Firm "for all out-of-pocket expenses and disbursements incurred by the Firm" in connection with the Gilbert Firm's representation of plaintiffs.[3]

Engagement Letter. From the date plaintiffs retained the Gilbert Firm until plaintiffs discharged the Gilbert Firm in or around October 2011, plaintiffs' case was handled chiefly by Matteis, as lead counsel, and by Copley. Other Gilbert Firm lawyers assisted Matteis and Copley, but played less substantial roles in the case.

On October 28, 2009, plaintiffs filed two complaints in this district, one against the Al Dobowi defendants and one against the Linglong defendants. After the two suits were promptly consolidated, the parties briefed and argued various threshold motions and then proceeded to conduct discovery. After completion of discovery, defendants sought summary judgment on all nine counts and succeeded on four counts. Plaintiffs then proceeded to trial on the remaining counts: (i) violation of the Copyright Act, 17 U.S.C. § 101, et seq., (ii) violation of the Lanham Act, 15 U.S.C. § 1051, et seq., as to registered marks, (iii) violation of the Lanham Act as to unregistered marks, (iv) common law conversion, and (v) common law civil conspiracy.

During the six-day trial, the parties presented live and videotaped testimony from a number of witnesses, substantial documentary evidence, and competing expert testimony on the issues of infringement and damages. In the end, the jury returned a verdict in favor of plaintiffs, awarding plaintiffs $26 million in damages jointly and severally against all defendants. Defendants' post-verdict Rule 50 motion met with only limited success; the registered trademark claim was dismissed for lack of evidence and the claim based on all but two of the unregistered marks suffered the same fate. Defendants' new trial motion failed as the record clearly supported the remaining verdicts and dismissal of some claims did not undermine the jury's damages award because the measure of damages was the same for all counts. Also post-trial, plaintiffs sought and obtained a $632, 377.50 attorney's fee award against Al Dobowi defendants on the ground that the Al Dobowi defendants' malicious, willful, and deliberate infringing conduct made this an "exceptional" case warranting a fee award pursuant to the Lanham Act's fee shifting provision, 15 U.S.C. § 1117(a). See In re Outsidewall Tire Litigation, 748 F.Supp.2d 557, 563 (E.D.Va.2010).

Defendants appealed and on June 6, 2012, the Fourth Circuit reversed the remaining trademark and conspiracy verdicts, but nonetheless upheld the $26 million judgment against defendants based on the jury's verdicts on the conversion and copyright violation claims. See Tire Eng'g and Distrib., LLC v. Shandong Linglong Rubber Co., Ltd, 682 F.3d 292, 298 (4th Cir. 2012). The Fourth Circuit also vacated the fee award because the trademark claims were the sole bases for that award. Id.

Prior to the December 2011 oral argument before the Fourth Circuit panel, attorneys Matteis and Copley, in October 2011, elected to leave the Gilbert Firm and establish their own law firm, WMC. Both firms offered to continue representing plaintiffs. After consulting with both firms, plaintiffs elected to stay with Matteis and Copley, and accordingly, discharged the Gilbert Firm and retained WMC to represent plaintiffs in this case. Shortly thereafter, in January 2012, the Gilbert Firm filed a Notice of Former Counsel's Lien pursuant to Va. Code § 54.1-3932.

Once the $26 million judgment against defendants became final and defendants declined to pay, WMC, on plaintiffs' behalf, commenced a vigorous and wide-ranging collection effort. This effort included initiating lawsuits to compel banks to turn over defendants' assets in the banks' possession[4] and proceedings to enforce subpoenas and garnishments in courts across the country.[5] These collection efforts led to an agreement by the Linglong defendants to pay plaintiffs $15.5 million to settle and resolve the Linglong defendants' liability in this case.

Thereafter, plaintiffs filed a motion to determine the value of the Gilbert Firm's lien. The Gilbert Firm sought to recover its expenses, but it did not seek its contingency fee, conceding that the provision authorizing the contingent fee was not enforceable under Virginia law, and therefore the Gilbert Firm could recover only the value of its services in quantum meruit. Arguing that its significant contribution to plaintiffs' success in the litigation merited a substantial fee award, the Gilbert Firm sought $4.5 million in hourly fees, $1.8 million in costs, and a portion of the contingency fee.

By Order and Memorandum Opinion dated September 29, 2014, plaintiffs' motion to determine the value of the Gilbert Firm's lien was granted inasmuch as the reasonable value of the Gilbert Firm's lien was determined to be $1, 958, 341.67-$1, 237, 720 in attorney's fees and $720, 621.67 in costs. Outsidewall I, 52 F.Supp.3d at 795. With respect to attorney's fees, Outsidewall I employed a lodestar analysis and quantum meruit principles to determine the value of the Gilbert Firm's lien, concluding that the Gilbert Firm's rates were unreasonably high and that the Gilbert Firm's demand for 10, 955 hours was excessive. Id. 787-93. With respect to costs, Outsidewall I employed a reasonableness analysis, concluding that some of the costs sought were excessive or otherwise inappropriate. Id. at 793-95.

Thereafter, the Gilbert Firm appealed, and on January 11, 2016, the Fourth Circuit issued an unpublished Memorandum Opinion vacating and remanding the district court judgment on the grounds that Outsidewall I (i) did not expressly apply the factors for quantum meruit fee awards set forth by the Supreme Court of Virginia in County of Campbell, 112 S.E. at 885, and (ii) erroneously applied a quantum meruit analysis to the costs issue instead of enforcing the costs provision in the parties' Engagement Letter. In re Outsidewall Tire Litigation, No. 14-2192, 2016 WL 106276, at *3-5 (4th Cir. Jan. 11, 2016) (unpublished). Thereafter, the mandate issued, and the parties were expressly instructed by Order "to submit supplemental briefs that apply the legal tests elucidated by the Fourth Circuit"; the parties were neither directed nor permitted to submit additional factual material. In re Outsidewall Tire Litigation, l:09cvl217 (E.D. Va. Feb. 10, 2016) (Order) (Doc. 642). It remains, therefore, to apply the County of Campbell factors to determine the appropriate quantum meruit fee award and to apply the Engagement Letter's costs provision to determine the appropriate amount in costs to which the Gilbert Firm is entitled.

In the fee claim at issue in Outsidewall I, the Gilbert Firm claimed that its lawyers spent 10, 955 hours on the case at hourly rates ranging from $375/hour to $900/hour, for a total of $4, 542, 228.50. Now, on remand, it is important to note that the Gilbert Firm does not seek all of the 10, 955 hours originally claimed, but instead seeks 4, 192 hours fewer than that figure. Thus, the Gilbert Firm seeks on remand to recover attorney's fees for 6, 763 hours at the same hourly rates, for a total of $3, 118, 595. With respect to costs, the Gilbert Firm claimed in Outsidewall I that it was entitled to $1, 812, 149.20 in costs. Yet, on remand, the Gilbert Firm excludes $71, 836.30 of the costs originally claimed, and therefore now seeks $1, 740, 312.90 in costs.

II.

As the Fourth Circuit made clear in its unpublished January 11, 2016 opinion, "[t]he parties agree that Virginia law governs the Gilbert Firm's recovery from its former client, and that Virginia law prohibits the Gilbert Firm from enforcing its contingency fee agreement with [plaintiffs]." In re Outsidewall Tire Litigation, 2016 WL 106276, at *2. The Fourth Circuit further elucidated the governing law by noting that "[u]nder Virginia law, 'when, as here, an attorney employed under a contingent fee contract is discharged without just cause and the client employs another attorney who effects a recovery, the discharged attorney is entitled to a fee based upon quantum meruit' for the work performed before the attorney was terminated." Id. at *2 (quoting Heinzman v. Fine, Fine, Legum & Fine, 234 S.E.2d 282, 285 (Va. 1977)). The Supreme Court of Virginia has defined quantum meruit as "the reasonable value of the services ...


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