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Hair Club for Men, LLC v. Ehson

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

April 3, 2017

Hair Club for Men, LLC, Plaintiff,
Lailuma Ehson and Illusion Day Spa, LLC, Defendants.


          Liam O'Grady, United States District Judge

         This matter comes before the Court on Plaintiffs Motion for Attorney's Fees and Costs. Dkt. No. 159. For the reasons discussed below, the Court hereby ORDERS that Plaintiffs Motion is GRANTED. Plaintiff is entitled to $208, 790.95 in attorney's fees and $11, 706.90 in costs.

         I. Background

         This demand for attorney's fees arises out of a contract dispute between the Plaintiff, Hair Club for Men, LLC, and one of its former employees, Defendant Lailuma Ehson, and Defendants' misappropriation of Plaintiff s trade secrets and wrongful interference with contract and business advantage. Ms. Ehson served as a hair stylist with Plaintiff from 2011 to July 2015 before opening a competing salon, Defendant Illusion Day Spa. At the time of her employment, Ms. Ehson executed a Confidentiality, Non-Solicitation, and Non-Compete Agreement ("the Agreement"). The Agreement provided that with respect to any breach of the covenants or assurances in die agreement, "[i]n the event that the Company is compelled to file a complaint in any court of competent jurisdiction for an injunction, and /or an accounting and damages, and the Company is successful is [sic] such action, [employee] will pay reasonable attorney's fees and court costs in connection therewith." Dkt. No. 1, Exh. A at 4.

         The parties cross-moved for summary judgment. The Court granted Plaintiffs Motion for Summary Judgment respecting the breach of contract claims and denied Plaintiffs unjust enrichment and tortious interference claims. Dkt. No. 112. The parties undertook a jury trial to assess damages and liability for the tort claims. After a three-day trial, the jury entered a verdict finding Defendants liable on all of the remaining claims and awarding damages to Plaintiff. Dkt. No. 144. The Court subsequently awarded Plaintiff a permanent injunction estopping Defendants from further interference with Plaintiffs business advantage or making use of misappropriated trade secrets. Dkt. No. 157. In the same order, the Court granted a remittitur reducing the total awarded damages to $258, 330. Id.

         Following the Court's Order, Plaintiff moved for attorney's fees and costs. Dkt. No. 159.

         II. Legal Standard

         Under the American Rule, a prevailing litigant is generally not entitled to recover attorney's fees from the non-prevailing litigant unless a statute or contract provides otherwise. Baker Bolts L.L.P. v. ASARCO LLC, 135 S.Ct. 2158, 2164 (2015). Pursuant to Virginia law, "parties are free to draft and adopt contractual provisions shifting the responsibility for attorneys' fees to the losing party in a contract dispute." Ulloa v. QSP, Inc., 271 Va. 72, 81 (2006). Where the contract provides for an award of fees to the prevailing party, that party bears "the burden of establishing, as an element of its prima facie case, that the attorneys' fees it seeks are reasonable in relation to the results obtained and were necessary." Chawla v. BurgerBusters, Inc., 255 Va. 616, 624 (1998). With respect to claims made under the Virginia Uniform Trade Secrets Act, a court may award "reasonable attorneys' fees to the prevailing party" if "willful and malicious misappropriation exists." VA Code § 59.1-338.1.

         If a party is entitled to recover attorney's fees, to calculate the award the Court "must first determine a lodestar figure by multiplying the number of reasonable hours expended times a reasonable rate." Robinson v. Equifax Info. Servs., LLC, 560 F.3d 235, 243 (4th Cir. 2009). In determining the reasonable number of hours and a reasonable rate, the court may consider the twelve factors set out in Johnson v. Georgia Highway Express Inc.:

(1) The time and labor expended; (2) the novelty and difficulty of the questions raised; (3) the skill required to properly perform the legal services rendered; (4) the attorney's opportunity costs in pressing the instant litigation; (5) the customary fee for like work; (6) the attorney's expectations at the outset of the litigation; (7) the time limitations imposed by the client or circumstances; (8) the amount in controversy and the results obtained; (9) the experience, reputation, and ability of the attorney; (10) the undesirability of the case within the legal community in which the suit arose; (11) the nature and length of the professional relationship between attorney and client; and (12) attorneys' fees awards in similar cases.

488 F.2d 714, 717-19 (5th Cir. 1974). There is "a strong presumption that the lodestar represents the reasonable fee." City of Burlington v. Dague, 505 U.S. 557, 562 (1992) (internal quotation marks omitted). After the lodestar figure is calculated, "the court must subtract fees for hours spent on unsuccessful claims unrelated to successful ones." McAfee, 738 F.3d at 88. Finally, the court "award[s] some percentage of the remaining amount, depending on the degree of success enjoyed by the plaintiff." Id.[1]

         III. Discussion

         Plaintiff seeks $297, 523.80' in attorney's fees and $11, 706.90 in costs. This memorandum sets forth Plaintiffs entitlement to the requested fees, the reasonableness of those fees, and Plaintiffs entitlement to costs.

         A. Entitlement to Fees

         Before determining whether the fees in this case are reasonable the Court must first establish that Plaintiff is entitled to recover its attorney's fees pursuant to contractual or statutory obligations. See Manchester Oaks Homeowners Ass'n, Inc. y, Batt, 732 S.E.2d 690, 702 (Va. 2012) ("[I]n an action encompassing several claims, the prevailing party is entitled to an award of costs and attorneys' fees only for those claims for which (a) there is a contractual or statutory basis for such an award and (b) the party has prevailed."). The parties have divided the claims into three classes: the breach of contract claim; the Virginia Uniform Trade Secret Act ("VUTSA") claim; and residual claims. The memorandum addresses each of these classes of claims in turn.

         7. Breach of Contract Claim

         As discussed above, Virginia law permits contractual fee-shifting provisions. See Ulloa, 271 Va. at 81. The parties agree that the confidentiality, non-solicitation, and non-compete agreement in this case included a fee-shifting provision. The agreement provided that ''[i]n the event that the Company is compelled to file a complaint in any court of competent jurisdiction for an injunction, and /or an accounting and damages, and the Company is successful is [sic] such action, [employee] will pay reasonable attorney's fees and court costs in connection therewith." Dkt. No. 1, Exh. A at 4. Accordingly, the parties agree that Plaintiff is entitled to reasonable attorney's fees for its breach of contract claim.

         2. VUTSA Claim

         Plaintiff is only permitted to recover attorney's fees for its VUTSA claim if Defendants' misappropriation of Plaintiff s trade secrets was willful and malicious. Va. Code § 59.1-338.1. Willful and malicious misappropriation is "acting consciously in disregard of another person's rights or acting with reckless indifference to the consequences, with the defendant aware, from his knowledge of existing circumstances and conditions, that his conduct probably would cause injury to another." Owens-Corning Fiherglas Corporation v. Watson, 413 S.E.2d 630, 640 (1992) (quoting Booth v. Robertson, 374 S.E.2d 1, 3 (Va.1988)).

         The parties do not dispute that the jury found Defendants had misappropriated Plaintiffs trade secrets. Defendants contend that this misappropriation was not willful or malicious. Specifically, Defendants observe that the jury was not asked to find whether the trade secrets were misappropriated willfully or maliciously on the special verdict form. Further, Plaintiff put forth no evidence that Defendants deliberately intended to hurt Plaintiff or acted out of any animosity towards it. Thus, Defendants argue that "while selfish and ignorant, this Court should not find such behavior to be reckless or malicious." Dkt. No. 163 at3.

         Plaintiff counters that the willful and malicious nature of the misappropriation was evident in Defendants' persistent diversion of Plaintiff s customers and misappropriation of trade secrets for the benefit of their competing business even after they were put on notice that Plaintiff objected to the conduct. Plaintiff also notes that Ms. Ehson lied about her reason for leaving employment with Plaintiff to conceal that she had started a competing business based on the misappropriated trade secrets.

         Defendants cite no authority for the proposition that a jury must explicitly find on the special verdict form that misappropriation was willful or malicious in order to assess attorney's fees under VUTSA. In addition, while Defendants are correct that Plaintiff must present some evidence of willfulness or maliciousness, they are incorrect in claiming that no such evidence was presented. The evidence presented in support of die motion for summary judgment and at trial established that Ms. Ehson concealed her competing business from Plaintiff and misappropriated trade secrets in furtherance of that business. Even if Defendants mistakenly believed that they were free to provide hair replacement services to those customers who no longer received services from Plaintiff, this error would not account for all of the misappropriation claims. The jury found Defendants liable for the customers who received Defendants' services notwithstanding whether they were still enrolled with Plaintiff when it awarded a single lump sum of damages as to the VUTSA claim.

         As Plaintiff rightly points out, and Defendants fail to rebut, this case is substantially analogous to National Legal Research Group v. Lathan, No. CIV. A. 92-0031 -C, 1993 WL 169789 (W.D. Va. May 17, 1993) affdsub nom. Nat'l Legal Research Grp., Lnc. v. Lathan, 42 F.3d 1386 (4th Cir. 1994). In National Legal Research Group, the court found that punitive damages[2] were appropriate for a misappropriation claim brought pursuant to the VUTSA based on the evidence presented at summary judgment. The court described the misappropriation thusly:

Lathan's violation of his fiduciary duty to NLRG established the willful and malicious aspects of his misappropriation. The evidence showed that Lathan planned to leave NLRG as early as November 21, 1988, but that he did not actually resign until March 2, 1992, three years and three months later. Over this period of time, Lathan concealed from NLRG's management his knowledge of its customer complaints, and of Mislow's diversions. Lathan knew that this information was vital to the interests of NLRG. In addition, Lathan concealed his own actions taken to establish a competing business, specifically Ms diversions of NLRG's clients, his toll-free telephone number, and his Rolodex cards for his new business. Again, Lathan knew that these actions would injure NLRG's business. This evidence is sufficient to support an award of punitive damages.

Id. at * 11. Similarly, the Court found on summary j udgment that Ms. Ehson had breached her fiduciary duty to Plaintiff by soliciting clients prior to termination. The solicitation and competing business were concealed from Plaintiff. It is axiomatic that when one of Plaintiff s hair replacement service customers leaves for a competitor that Plaintiffs business suffers. Accordingly, Defendants attempts to plead ignorance are to no avail. The misappropriation was willful and malicious.

         For this reason, the Court awards attorney's fees for the VUTSA claim.

         3. Residual Claims

         Plaintiff also seeks attorney's fees for successful claims for wrongful interference and breach of fiduciary duty and unsuccessful claims for tortious interference with contractual relations and unjust enrichment. There is no statutory or contractual duty to award fees for these claims. Plaintiff contends that it is nevertheless entitled to recover on these claims because they are related to and share a common core of facts with Plaintiffs fee-shifting claims. Defendants contest this characterization.

         The Fourth Circuit recently instructed the Court on the proper standard for unsuccessful claims:

Prevailing party status does not, however, automatically make that party eligible for all the fees they request. In Virginia, "each party [has] the burden of establishing, as an element of its prima facie case, that the attorneys' fees it seeks are reasonable in relation to the results obtained and were necessary." Chawla v. BurgerBusters, Inc., 255 Va. 616, 624, 499 S.E.2d 829 (1998). Moreover, "[n]either party shall be entitled to recover fees for duplicative work or for work that was performed on unsuccessful claims." Id. It is well-settled in Virginia that "under contractual [fee-shifting] provisions a party is not entitled to recover fees for work performed on unsuccessful claims." Ulloa v. QSP, 271 Va. 72, 82, 624 S.E.2d 43 (2006).

Zoroastrian Ctr. & Darb-E-Mehr of Metro. Washington, D. C. v. Rustam Gniv Found. of N. Y., 822 F.3d 739, 754 (4th Cir. 2016). The Fourth Circuit also noted that Virginia steadfastly rejects the "common core of facts or related legal theories" approach employed by federal courts as to federal claims and endorsed by the parties in this case. Id. at 754, n.8; see also Ulloa, 271 Va. at 83. In Zoroastrian, the Fourth Circuit vacated the Court's award of attorney's fees and remanded for further analysis under a contractual fee shifting provision because, even though the defendants generally prevailed on the merits, they did not prevail on one of their counterclaims. Id. at 755. The Fourth Circuit determined that "[a]bsent some discount or reduction for this unsuccessful counterclaim, the court's fee award includes time spent on matters for which Rustam Guiv was not entitled to recover under Virginia law." Id. Keeping in mind the Fourth Circuit's admonition in Zoroastrian Center, attorney's fees for the unsuccessful claims in this case are not appropriate.

         Attorney's fees are also not appropriate under Virginia law for the remaining successful claims. Plaintiff concedes that these fees are not provided for by statute or under the contract but contends that they should nevertheless be awarded because the claims are closely intertwined with the claims for which fees were awarded. The Supreme Court of Virginia's decision in Ulloa guides the assessment of fees for successful claims for which no statutory or contractual basis for fees has been provided. In Ulloa, the Supreme Court of Virginia found that a prevailing party could not recover for misappropriation of trade secrets where the only basis that the party claimed for attorney's fees was the contractual fee-shifting provision. Ulloa, 271 Va. at 81. The Supreme Court held that the misappropriation claim did not qualify as "any action relating to the parties' contract as contemplated by the contract's fee-shifting provision." Id. The Supreme Court was not persuaded "that simply because all of QSP's claims were intimately intertwined and depended upon a common factual basis that QSP was relieved of the burden to establish to a reasonable degree of specificity those attorneys' fees associated with its breach of contract claim[.]" Id. At 83.

         Virginia courts have applied this reasoning in rejecting attorney's fees for successful claims which are vested with no independent statutory or contractual right to recovery. See Couch v. Manassas Autocars, Inc., 77 Va. Cir. 30 (2008) (finding that attorney's fees should not be permitted for successful revocation claim because the claim was not statutorily or contractually eligible for fee recovery); Kelley v. Little Charlie's Auto Sales, No. 4:04CV00083, 2006 WL 2456355, at *6 (W.D. Va. Aug. 22, 2006) (finding that the prevailing party on VCPA and fraud claims was only entitled to recover half of the lodestar figure because only the VCPA claim conferred a legal basis for the recovery of fees); linger v. Beatty, 52 Va. Cir. 289 (2000) ("The separation of fees is thus as to work for which no fees would ever have been recoverable, as opposed to work for which, if successful, fees might have been recovered.").

         Plaintiff argues that the claims are all related and share a common core of facts. This proffer does not satisfy the requirement under Virginia law to clearly set out that each successful claim is supported by a statutory or contractual right to attorney's fees. Plaintiffs successful wrongful interference and breach of fiduciary duty claims did not depend on the existence of the contractual relationship between Plaintiff and Defendants or the willful or malicious misappropriation of trade secrets. Rather the claims arise out of Defendants' interference with Plaintiffs contracts with its customers, which is not a cognizable ground for recovery of attorney's fees.

         Where, as here, the successful claims are not dependent on provisions of contract or statute that permits recovery of fees, the Court may not award fees for those claims. See Uiloa, 271 Va. at 81 ("A successful claim under the Act, including an award of attorneys' fees, is therefore not dependent upon provisions contained in a contract between the parties."). Accordingly, the Court does not award fees for the time devoted to the wrongful interference and breach of fiduciary duty claims.

         B. Lodestar Calculation

         As discussed above, the Court determines the lodestar figure by calculating the reasonable hourly rates and the reasonable number of hours expended. Robinson, 560 F.3d at 243. ...

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