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QAD.INC. v. ALN ASSOCS.

November 3, 1992

qad.inc., et al., Plaintiffs,
v.
ALN ASSOCIATES, INC., et al., Defendants.



The opinion of the court was delivered by: MILTON I. SHADUR

MEMORANDUM OPINION AND ORDER

 This long-pending and bitterly contested litigation has had a checkered history, beginning with the initial grant of preliminary injunctive relief in favor of Plaintiffs qad.inc. and Pamela and Karl Lopker (collectively "qad," treated as a singular noun) against original defendants ALN Associates, Inc. and its then principals Sally and Mike Allen (collectively "ALN," also treated as a singular noun), a determination that this Court later found to have been the direct result of qad's improprieties and bad faith in conjunction with its attempted enforcement of its claimed copyrights. Most recently our Court of Appeals has affirmed this Court's dissolution of that preliminary injunction on the ground that it had been improvidently granted ( Nos. 91-2588 and 91-2907, 974 F.2d 834, 1992 U.S. App. LEXIS 20702 (7th Cir. Sept. 3, 1992)), while at the same time this Court has completed the evidentiary hearings needed to determine ALN's damages stemming from that wrongfully-induced injunction. *fn1"

 In the meantime this Court has received and has ruled upon ALN's initial petition for fees to be paid by qad to ALN (the "First Fee Petition"). That ruling, embodied in this Court's June 10, 1992 memorandum opinion and order, has caused ALN to be reimbursed for a portion of its lawyers' services. Since then ALN has tendered its Second Fee Petition, in which it seeks payment for services rendered in connection with the damages hearing and in preparing the First Fee Petition. That current request has now been fully briefed by the parties.

 This Court has long been of the view--for years before issuance of the In re Continental Illinois Securities Litigation, 962 F.2d 566 (7th Cir. 1992) opinion by our Court of Appeals--that the market often dictates the best measure of reasonableness of an award where fee shifting is called for under the law. *fn2" If a lawyer has rendered services for his or her client with the expectation of payment, and if the client has paid or is committed to pay for those services--whether on an hours-times-hourly-rate basis or otherwise--and if it later turns out that the third party must make the client (or lawyer) whole by bearing that legal expense, *fn3" no good reason appears for going behind the arms-length resolution of the fee issue between lawyer and client. *fn4" Like most situations in our society in which goods or services are bought and sold, the price reached as between willing buyer and willing seller is the presumptive hallmark of the reasonable price.

 There are some great and obvious advantages to the use of market price where it is appropriate. No court looking at the matter in hindsight can really say whether the hours that are represented by the claimant law firm *fn5" as having been spent on legal activity (even apart from any questions of honesty in such record-keeping) were "reasonably" required, so as to represent the "right" number of hours for which the third party should pay. And as to the other component of an hourly-based fee, the determination of the "reasonable" market rate for a lawyer's services is by no means susceptible to an assuredly "right" answer (see, e.g., our Court of Appeals' recent opinion in Barrow v. Falck, Nos. 90-3425 and 91-2937, 977 F.2d 1100, 1992 U.S. App. LEXIS 25785, at *12-*17 (7th Cir. Oct. 13, 1992)). *fn6"

 Moreover, the very process of judicial intervention increases the costs to the parties (the fees-on-fees component) and to the system itself (the so-called satellite litigation problem). For a graphic illustration of both those phenomena, see this Court's extended opinions issued after a four-day evidentiary hearing on fees--followed by voluminous post-hearing submissions by the litigants--in Brandt v. Schal Associates, 131 F.R.D. 485 and 131 F.R.D. 512 (N.D. Ill. 1990), aff'd, 960 F.2d 640 (7th Cir. 1992). So where fee-shifting has been found necessary, and where the factors are such as to make the market a reliable source of information, this Court's continuing sense of the matter is that the inquiry into the proper measure for such fee-shifting ought to begin and end right there.

 Frequently, however, the test of the marketplace will not provide a suitable answer--or any answer at all--to the question of the reasonable lawyers' fee. In the class action or stockholders' derivative action, for example, it is not realistic to speak of the representative plaintiff or plaintiffs as having set the terms of the relationship in the expectation of bearing the tariff (a point well made in Continental Illinois, 962 F.2d at 572-73 and repeated in Price v. Marshall Erdman & Assocs., Inc., 966 F.2d 320, 328 (7th Cir. 1992)). Hence the courts have had to struggle with such issues as whether the "lodestar" is the right approach, whether multipliers are to be applied if the lodestar is the starting point, whether a percentage-of-recovery approach may be preferable, whether an auctioning-off of the legal representation may provide a better solution than the other methods, whether a new approach ought to be adopted by eliminating what is often the fiction that there is a real client in such actions--and the list goes on (see Jonathan Macey & Geoffrey Miller, The Plaintiffs' Attorney's Role in Class Action and Derivative Litigation: Economic Analysis and Recommendations for Reform, 58 U.Chi.L.Rev. 1 (1991) for a partial description of the available choices, made in the course of advocating a drastic revision of the whole class action concept).

 There are other types of situations where the market is not reliable because it is not operating in the usual sense. Such express fee-shifting statutes as 42 U.S.C. § 1988 assure the "prevailing party" plaintiff (though not the "prevailing party" defendant) that an award of fees will be decreed as part of the relief. *fn7" That being the case, the lawyer who may view a 42 U.S.C. § 1983 case as an assured winner and whose own client has no interest in monitoring the fee (as any client would if the client were buying services in the traditional lawyer-client relationship) is without the normal incentives to spend only the amount of time that is commensurate with the amount of the claim discounted by its likelihood of success.

 And the marketplace (as established between the lawyer and the client in the sense discussed earlier) also cannot be the sole determinant where it has already been decided in a matter that the lawyer will be entitled to reach into the adversary's pocket, not that of his or her own client, for payment of fees. Where for example Rule 11 or Section 1927 or some other sanctions provision is already in play and where the lawyer for the aggrieved party then renders further services afterwards, with both lawyer and client thus already having been assured that the fees will be shifted (or more accurately that the fees will be borne by the other side from the outset), the usual self-policing constraints no longer provide assurances of reasonableness.

 Distressingly, judicial opinions rarely differentiate among the different situations that call for something other than the so-called American Rule under which the client pays his, her or its lawyer what they have agreed upon. Much of the mischief that has been engendered by the case law on the entire subject of attorneys' fees--and there is much, from the highest authority on down--is the product of a failure to recognize that the same label has been attached to fundamentally different situations that call for the application of fundamentally different principles to produce fundamentally different solutions.

 So much for policy, which we must always be aware is not the province of the District Judge. Now to the practical application of the relevant principles to this case. It has already been said that this Court had earlier determined that part of the price that qad must pay for its improprieties is to make ALN whole for the legal expense that it had wrongfully been forced to incur as the result of that misconduct. Once that determination had been announced, ALN's lawyers could obviously have taken a different perspective from their earlier posture in the litigation, now viewing themselves as being in a no-lose situation in spending time in preparation for (and in the conduct of) the enforcement proceeding to determine ALN's damages flowing from the wrongful issuance of the preliminary injunction. *fn8"

 That point has not of course been lost on qad's counsel. Their response to ALN's Second Fee Petition begins with the basic contention that ALN's request is vastly excessive in amount, then points to several specific instances of claimed overkill. As their Response at 2 (quoted verbatim) puts it in terms of particulars, after having stated qad's global complaint:

 2. ALN improperly asks qad to pay for work on issues where the Court has ...


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