Prove it! Lessons Learned from Recent N.C. Business Court Rulings on Fee Requests.

29 Mar 2023 2:38 PM | Deleted user

By Jeff MacHarg and La-Deidre Matthews

Every litigant wants their attorneys’ fees, but actually recovering them in North Carolina is rare.  Fee recovery must be authorized by rule or statute, and fees must be “reasonable.” 

As several recent Business Court rulings remind us, when it comes to proof of “reasonableness,” more is better. 

A refresher on the basics:  A party seeking fees has the burden of establishing both entitlement and reasonableness.  Reasonableness is within the Court’s discretion and is determined based on a (non-exhaustive) list of factors.  The baseline is set by the factors in Rule 1.5 of the North Carolina State Bar’s Revised Rules of Professional Conduct, which prohibits fees that are “clearly excessive.”  These factors often overlap with those in statutes authorizing fees.  See N.C. Gen. Stat. § 6-21.6 (listing 13 “reasonableness” factors).

The list below combines factors from Rule 1.5, statutes and recent cases.  Parties seeking fees should submit proof of as many of these factors as possible.

·       The amount in controversy;

·       The results obtained;

·       The reasonableness of the time and labor expended;

·       The billing rates;

·       The fee or rates customarily charged in the locality for similar legal services;

·       The novelty and difficulty of the questions raised in the action;

·       The skill required to perform properly the legal services rendered;

·       the experience, reputation, and ability of the lawyers performing the service;

·       The time limitations imposed by the client or by the circumstances;

·       The nature and length of the professional relationship with the client;

·       Timing and amounts of settlement offers including those prior to the institution of the action, as compared to the result;

·       Offers of judgment pursuant to Rule 68 of the North Carolina Rules of Civil Procedure as compared to the result;

·       The terms of the business contract;

·       Whether the fee is fixed or contingent; and

·       Whether any interested party objects or opposes.

See N.C. Gen. Stat. § 6-21.6;  Chambers v. Moses H. Cone Mem'l Hosp., 2022 NCBC 61, ¶ 25 (N.C. Super. Ct. Oct. 19, 2022) (Conrad, J.) (assessing reasonableness of fees based on Rule 1.5 of the Revised Rules of Professional Conduct and other practical considerations)

Notably, several of these factors are completely within the parties’ control, particularly those regarding settlement.  When a potential fee recovery is in play, parties need to know that settlement offers and demands, especially early ones, could end up helping (or hurting) a fee request that comes months or years later.  As a result, all settlement offers, demands, and positions should be documented since settlement positions often dictate (and arguably justify) the vigorousness of the litigation that follows. 

The following orders from 2022 provide other and further insights into proving reasonableness of fee requests.

Miriam Equities, LLC v. LB-UBS 2007-C2 Millstream Road, LLC, No. 19 CVS 8523, 2022 WL 2802526 2022 NCBC Order 54 (N.C. Super. Ct. July 08, 2022) (Earp, J.) involved a contract dispute where the contract allowed the prevailing party to recover their fees (as permitted by N. C. Gen. Stat. § 6-21.6).  When the defendant prevailed at summary judgment, it sought fees under the contract. 

Even though there was no opposition filed, Judge Earp still had to assess the defendant’s proof of reasonableness.  The defendant supported its fee petition with invoices, a good first step.  But the invoices had defects.  Judge Earp first commented (unfavorably) about the difficulty in trying to assess reasonableness of the work when time entries are “block billed,” i.e., different tasks are billed as a single block of time.  Additionally, some of the time entries were completely redacted, leaving no information on which to determine reasonableness. 

As for rates, the defendants did not support this fee petition with an affidavit.  Instead, the defendant relied on an affidavit its counsel submitted several months prior as part of a fee petition for a discovery sanction.  But the prior affidavit was incomplete.  It did not have rate or experience information for all of the legal professionals. 

As for hourly rates, again, the evidence was insufficient.  Much like the prevailing party in Vanguard Pai Lung (discussed below), defendant’s (prior-filed) supporting affidavit was from the lead attorney himself.  Although an attorney testifying about reasonableness of their own rates is evidence of reasonableness, one might question whether it is the most persuasive evidence.  Judge Earp considered the affidavit, but also took judicial notice of customary rates of North Carolina attorneys as reported in other attorney fee cases.  In the end, Judge Earp concluded that the rates requested in this case were somewhat higher.  She, therefore, reduced the requested rates by 15-25% to bring them more in line with other evidence of customary rates.

The above issues of proof – all of which could have been corrected or at least mitigated – resulted in roughly $100,000 in fee reductions.  Surely a balance must be struck, but in this instance more and better proof may have resulted in fewer reductions. 

Vanguard Pai Lung, LLC v. Moody, 2022 NCBC 48 (N.C. Super. Ct. Aug. 31, 2022) (Conrad, J.), also illustrates several proof and other considerations when seeking attorney’s fees.  Before even getting to “reasonableness,” parties must first apportion requested fees to only those claims that allow for fee recovery.  In this case, there were two plaintiffs and two dozen claims and counterclaims.  The jury returned a verdict in favor of the plaintiffs on several claims, but only one claim, embezzlement, allowed for recovery of fees.  See N.C. Gen. Stat. § 1-538.2(a).  Also, although the two plaintiffs shared the same counsel, only one of them prevailed on the embezzlement claim. 

Citing authority that allows recovery of all fees when fee and non-fee claims are “inextricably intertwined,” plaintiffs, jointly, sought the full $2.5 million incurred in the case as a whole.  They argued that segregation between plaintiffs and specific claims or counterclaims was not “practically possible.”  Judge Conrad disagreed. 

Judge Conrad pointed out that only one of the two plaintiffs asserted the embezzlement claim, so only one of them was entitled to any fees.  Judge Conrad also found that the claims were not so inextricably intertwined that it would be impossible to apportion fees to embezzlement over other claims and defense work.  To prove the point, Judge Conrad noted several distinct jury findings on claims that had nothing to do with embezzlement. 

As for reasonableness of work and time spent, Judge Conrad found that plaintiffs’ evidence was insufficient.  Instead of submitting bills and time entries (which plaintiffs instead offered to provide for in camera review), plaintiffs provided affidavits from counsel of record.  These affidavits included charts summarizing total hours billed by timekeeper.  But, as Judge Conrad explained, without seeing time entries, the Court cannot assess the reasonableness (or unreasonableness) of any of the work.  

As for rates, again, affidavits from counsel of record were not sufficient to justify the hourly rates of some of the out-of-state attorneys.  In particular, Judge Conrad questioned the reasonableness of hourly rates of the California lawyers from Perkins Coie LLP, which were nearly double those of able local counsel at Womble Bond Dickenson LLP. 

Ultimately, Judge Conrad denied the motion without prejudice to refile after post-trial motions and appeals.  This opinion, of course, provides a cautionary roadmap for counsel to ensure fees are properly apportioned and to ensure that  they submit their best supporting evidence with the motion.   

Erwin v. Myers Park Country Club, Inc., 2022 NCBC Order 32, (N.C. Super. Ct. June 9, 2022) (Robinson, J.) is instructive for a different and practical reason: fee awards are never guaranteed.  In this case, the party seeking fees seemed to do everything right.  Its fee petition was supported by detailed affidavits from both counsel of record and a reputable local attorney.  These affidavits ticked off many of the factors set forth above.  There were no issues with block billing.  All the relevant time entries were organized, assessed, and submitted.  But, as was reported in a previous post, Judge Robinson was not persuaded that the time spent was reasonable.  After a painstaking, task-by-task review of every single time entry, Judge Robinson exercised his discretion and awarded only 30% of the fees that were requested.  One important takeaway from this ruling is that even with a statutory mandate and seemingly the best proof a party can muster, fees are never a guarantee.  That’s because reasonable minds can always differ as to what is “reasonable.” 

Bucci v. Burns, 2022 NCBC Order 63, (N.C. Super. Ct. Nov. 17, 2022) (Conrad, J.) reiterates many of the points of above, and one more: when fees are authorized by a remedial statute, parties should request fees incurred in preparing their fee petition, i.e., fees on fees.

In this multi-party case, two of the defendants prevailed at summary judgment on some (but not all) claims asserted by certain two of seven plaintiffs.  These defendants successfully argued that the subject claims should never have been brought by these plaintiffs because, contrary to the allegations in the pleadings, these claims were never supported by any actual evidence. 

As the prevailing parties on this subset of claims, these defendants sought fees under N.C. Gen. Stat. § 6-21.5, which allows recovery of attorney’s fees caused when a party prevails on claims that were brought despite “the complete absence of a judiciable issue of either law or fact.”

In assessing these fee petitions, Judge Conrad again addressed issues of apportionment and proof.  On apportionment, (i.e., how to allocate fees caused only by the nonjusticiable claims when other claims were justiciable), the moving defendants asked the Court to simply divide the total fees incurred by the total number of plaintiffs (seven) and charge the losing plaintiffs’ their share.  Judge Conrad disagreed, explaining that this type of simple allocation would be inequitable and contrary to N.C. Gen. Stat. § 6-21.5, which allows only those fees caused by the improper filing.  Judge Conrad found that the defendants would have incurred most of the fees in defending the other claims anyway.  Instead, proper apportionment could only be had with careful review of the evidence to determine which fees were caused by the nonjusticiable claims.  But the defendants’ evidence was deficient, making it impossible to identify (e.g. by time entry) what work was caused by the nonjusticiable claims. 

Although invoices were submitted, much of the time was block-billed and aggregated.  Defendants also made no effort to try to identify and allocate time caused by the particular nonjusticiable claims.  This record evidence left apportionment within the Court’s “ample discretion,” which Judge Conrad exercised, “cautiously.” 

Judge Conrad used what information could be gathered from the invoices, and not surprisingly, awarded only a small fraction of the total fees that were requested.  For one defendant, Judge Conrad allowed recovery of approximately 50 of the 700 total hours spent on the case.  For the other defendant, whose time entries were even more inscrutable for this purpose, Judge Conrad allowed recovery of approximately 30 of 1,200 total hours spent.   Neither defendant requested or even hoped for a total recovery, but different evidence, with no block billings and detailed time entries may have made a difference. 

This Bucci v Burns opinion is remarkable for an additional reason: one of the two moving defendants requested fees incurred in preparing their fee motion, i.e., fees on fees, and Judge Conrad granted the motion (in part).  Judge Conrad acknowledged that fee petitions take time and can be expensive.  Disallowing fees on fees that are awarded under a remedial statute would have a “deterrent effect” on seeking fees in the first place, which in turn would undermine the purpose of the statute, N.C. Gen. Stat. § 6-21.5.  Since the defendant’s original fee petition was granted only in part Judge Conrad allowed only a portion (25%) of the fees incurred in preparing the fee petition.  The defendant who did not seek fees on fees was awarded nothing.  Several lessons can be taken from this aspect of the ruling including: if fees are available under a remedial statute, a requesting party should seek fees on fees.

If fees are in play, here are some takeaways:

  • Apportion judiciously.  Know which claims and defenses give rise to fees as early as possible.  Ensure time entries are clear so that fees can be apportioned.  When it comes time to seek your fees, apportion them to claims that allow fee recovery.  If you don’t apportion, the Court will exercise its discretion with caution.
  • Know the “reasonableness” factors.  These factors could impact settlement strategy, timing of offers, and timekeeping habits.
  • Document all settlement discussions.  All settlement discussions, particularly early or pre-litigation offers, will inform the vigorousness of subsequent litigation.   
  • Submit your “best” affidavit(s).  If circumstances permit, consider engaging a lawyer outside your firm to assess the case, review billing records, tasks and time spent, and provide affidavit testimony to the Court on these matters including reasonableness of rates, other market rates, and time spent. 
  • Submit bills with detailed time entries.  Without time entries, the Court cannot assess the reasonableness of the time spent.  Time entries can be in the form of an authenticated summary of relevant entries or actual bills. 
  • Don’t block bill.  Time entries should ascribe time to each task.  Affidavits can be used to provide evidence that may not included on the bills.
  • Be realistic.  Even a well-supported or unopposed motion may be reduced.  This is yet another factor to consider when investing time to marshal and present evidence to support a fee petition.  
  • Seek fees on fees.  If a remedial statute is involved, the moving party should seek fees on fees.  But, again, be realistic. 

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