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BERTHOLD TYPES LTD. v. ADOBE SYSTEMS INC.

January 16, 2002

BERTHOLD TYPES LTD., AN ILLINOIS CORPORATION, PLAINTIFF,
V.
ADOBE SYSTEMS, INCORPOPATED, A DELAWARE CORPORATION, DEFENDANT.



The opinion of the court was delivered by: Elaine E. Bucklo, U.S. District Judge

MEMORANDUM OPINION AND ORDER

I.

Berthold and Adobe entered into a typeface Licensing Agreement ("Agreement") that contained the following provision:

7.10. Attorney[s'] Fees. In the event of any suit, action or proceeding in connection with this Agreement, the prevailing party in such proceeding shall be entitled to receive its costs, expert witness fees and reasonable attorneys' fees, including costs and fees on appeal.

Adobe's fee petition seeks fees for all four counts, but on August 2, 2001, I determined that Count IV did not "arise in connection with" the Agreement, and held that Adobe was not entitled to fees for work related to Count IV. See Berthold Types Ltd. v. Adobe Sys., Inc., 155 F. Supp.2d 887, 891 (N.D. Ill. 2001).

I dismissed Counts I through III on the merits and denied attorneys' fees under the contract. Adobe appealed, and the Seventh Circuit held that, because Adobe attached materials outside the complaint to the motion to dismiss and I did not exclude them (although as a matter of fact I did not consider them in making my determination), I had actually granted summary judgment on Counts I through III. It remanded for a determination of attorneys' fees. See Berthold Types Ltd. v. Adobe Sys. Inc., 242 F.3d 772, 774 (7th Cir. 2001). Berthold challenges an award of fees for work on Count III, arguing that Adobe was not the "prevailing party" because I could not possibly have reached the merits of the claim based on the Agreement, which was attached to Adobe's first motion to dismiss, and because the Seventh Circuit did not address Count III. This is not correct. Although I dismissed Count III without prejudice, the Seventh Circuit held that "the state-law statutory claim, which might have been amended to pass muster under Rule 9(b), was not amended, and so it too has been conclusively resolved in Adobe's favor." 242 F.3d at 776. Therefore Adobe is the prevailing party, so the only remaining question is whether Count III arose "in connection with" the Agreement.

Fee shifting provisions are construed strictly, see Harter v. Iowa Grain Co., 220 F.3d 544, 559 (7th Cir. 2000), but broad language such as "in connection with any dispute as to the debt" has been interpreted to include lawsuits ranging from default actions to contract and fraud claims. Petkus v. St. Charles Savs. & Loan Ass'n, 538 N.E.2d 766, 769 (Ill.App. Ct. 1989). The Seventh Circuit held that Counts I and II arose "in connection" with the Agreement, 242 F.3d at 776, and Berthold argues that its claim under the ICFA (Count III) "was in no way connected" with its contract and Lanham Act claims in Counts I and II. Resp. at 27. However, Count III merely re-alleged paragraphs one to thirty-one of the contract claim, and added allegations that Adobe's actions damaged Berthold and constituted deceptive trade practices and consumer fraud. Berthold argues that it could have brought its ICFA claim even if Adobe had never ceased marketing the Berthold typefaces (i.e., if Berthold had never breached the contract). That may be true, but it is irrelevant here; if a party has two claims arising out of the same facts, it need not bring both for one claim to arise in connection with the other. I held that Count IV did not arise "in connection with" the Agreement because it involved allegations of interference with an entirely different agreement. 155 F. Supp.2d at 891. It is conceivable that Berthold could have brought a claim against Adobe for deceptive trade practices that was completely unrelated to a breach of the Agreement, but it did not do so here. The operative facts in Count III are identical to the contract claim in Count I, so it arose "in connection with" the Agreement.

II.

Where parties to a private contract agree to an award of reasonable attorneys' fees to the prevailing party, the scope of my inquiry into the reasonableness of the fees is more limited than in statutory fee-shifting cases. See Medcom Holding Co. v. Baxter Travenol Labs., Inc., 200 F.3d 518, 520 (7th Cir. 1999); Balcor Real Estate Holdings, Inc. v. Walentas-Phoenix Corp., 73 F.3d 150, 153 (7th Cir. 1996); Zeidler v. A & W Restaurants, Inc., No. 99 C 2591, 2001 WL 561367, at *2 (N.D. Ill. May 21, 2001) (Kennelly, J.). In civil rights cases, statutory fee-shifting encourages plaintiffs to bring meritorious suits to enforce their rights. Even losing plaintiffs will not have to pay fees so long as the suit was not frivolous. Vukadinovich v. McCarthy, 59 F.3d 58, 61-62 (7th Cir. 1995). Vigorous review of statutory fee petitions is necessary to promote these objectives. However, where the parties bargain at arm's length for an attorneys' fees provision as part of a contract, I need only ensure that the parties get what they bargained for.

Medcom and Balcor involved indemnification clauses, and Berthold argues that they are distinguishable on that basis. The significance of indemnity in those cases was the identity of the payor, see Balcor, 73 F.3d at 153, and whether attorneys' fees should exclude overhead costs, see Medcom, 200 F.3d at 520. Neither issue is raised in this case. In both cases, however, the court indicated that, under a contractual fee-shifting provision, payment of the attorneys' bills by the client was persuasive evidence that the fees were reasonable. Id.; Balcor, 73 F.3d at 153. of course, payment of the bills is only the starting point of the analysis; I still must determine whether the fees paid were reasonable in light of other evidence. See Zeidler, 2001 WL 561367 at *3. But I need not engage in "a detailed, hour-by-hour review after the fashion of a fee-shifting statute." Medcom, 200 F.3d at 521. Instead, I "undertake[] an overview of [Adobe's] aggregate costs to ensure that they were reasonable in relation to the stakes of the case and [Berthold's] litigation strategy." Id.

A.

Berthold has numerous objections to the reasonableness of Adobe's request for fees. First, it objects to the billings of William Gaede and Michael Lisi of Cooley Godward LLP in San Francisco because they are not admitted to practice in Illinois and never filed applications for pro hac vice admission in the Northern District of Illinois for this case. Berthold argues that attorneys not licensed to practice in Illinois cannot receive compensation for legal services. In support of this genuinely remarkable proposition, unwarranted by existing law and unsupported by a good faith argument for the extension or reversal of such law, Berthold cites 705 ILCS 205/1 ("No person shall receive compensation directly or indirectly for any legal services other than a regularly licensed attorney.") and Lozoff v. Shore Heights, Ltd., 362 N.E.2d 1047 (Ill. 1977). In Lozoff, the Illinois Supreme Court interpreted § 205/1 to prohibit a Wisconsin attorney, not licensed in Illinois, to recover for legal services provided in the negotiation of a land sale contract in Illinois, and held that the attorney had engaged in the practice of law in Illinois. Id. at 1048-49. However, all of the parties involved in the contract negotiation, except the attorney seeking fees, were from Illinois, and the court "recognize[d that] there are transactions involving parties and attorneys from more than one State which would require a result different from today's holding." Id. at 1049. Here, Adobe is a Delaware corporation with its principal place of business in California, and both Gaede and Lisi are licensed to practice in California, and Berthold has not identified any legal services provided by Gaede or Lisi in Illinois. Section 205/1 does not bar recovery of attorneys' fees for their work in California simply because it relates to a case pending in federal court in Illinois.*fn1

Nor is failure to file an appearance or gain pro hac vice admission in impediment to collecting attorneys' fees. Local General Rule 83.12 does not require membership in the Illinois bar, and membership in the general bar of the Northern District of Illinois is only necessary if an attorney enters an appearance, files pleadings, motions or other documents, signs stipulations, or receives payment upon judgments, decrees or orders. The billing records do not indicate that Gaede or Lisi performed any of these functions, so pro hac vice admission was not required. Berthold's claim that it could not have foreseen that it would be liable for fees from Illinois and California attorneys in light of the relative lack of complexity of this case is not credible. Berthold is a sophisticated company that entered into a contract with a large California corporation, which it chose to sue in Illinois. It was foreseeable that Adobe would engage local counsel in addition to its regular California attorneys.

Finally, Berthold argues that the Cooley Godward attorneys were acting as clients or general counsel rather than as attorneys because Gaede was only involved sporadically and that ten of his thirteen time entries include telephone conversations. Gaede billed only 14.5 hours, mostly at the beginning of the case, though it is evident from the records of the other attorneys that he was involved in many more conferences than he billed. He is not transformed from attorney into client or general counsel merely because he supervised work over the telephone.

The only evidence that Cooley Godward's hourly rates were unreasonably high is that Berthold's Chicago attorneys charged less. In Chrapliwy v. Uniroyal, Inc., 670 F.2d 760 (7th Cir. 1982), the Seventh Circuit held that the district court had abused its discretion by concluding as a matter of law that fees for out-of-town counsel were capped at the customary rate in the locality where the case was pending. Id. at 768-69. Instead, the court should consider a number of factors, including the customary rate in the locality where the services were rendered, whether like services were available in the locality where the case was pending, and whether the party engaging out-of-town counsel acted reasonably in choosing non-local attorneys. Chrapliwy was a statutory fee-shifting case, but the factors are relevant to a determination of a reasonable fee for out-of-town counsel in this case. Chicago is certainly a sophisticated legal market, and Adobe could have, and indeed did, engage capable local counsel. But Berthold sued Adobe, a California corporation, in Illinois. Adobe is a "major client" of Cooley Godward, Adobe Ex. D, ¶ 2, and under the circumstances it was not unreasonable for Adobe to engage a law firm it retains in California for assistance with an Illinois law suit. Adobe has met its burden of demonstrating that the hourly rates charged by Cooley Godward were reasonable, and Berthold has not rebutted the evidence. Cf. Connolly, 177 F.3d at 597 (Party opposing fee award demonstrated that hourly rates charged were unreasonable by submitting multiple affidavits of attorneys with similar experience stating that rates "greatly exceeded the rates those attorneys would ordinarily charge in similar cases.").

Berthold also objects that Adobe's attorneys billed at an attorney's rate for "paralegal work" such as cite-checking. Although it may be more efficient to use paralegals for cite-checking and proofreading, it is not unreasonable for an attorney to perform these tasks. "[T]hese are crucial functions and therefore reasonable expenditures of time." Ragsdale v. Turnock, No. 85 C 6011, 1995 WL 115527, at *7 (N.D. Ill. Mar. 14, 1995) (Nordberg, J.), aff'd 94 F.3d 647, Nos. 95-2256, 95-2320, 1996 WL 449201, at *6 (7th Cir. Aug. 6, 1996). Here two attorneys billed approximately twenty hours to cite-checking and proofreading, most of which is attributable to the appeal. That is not unreasonable.

As to the value of the claim, Berthold estimates that Adobe valued the claim at roughly $250,000, including the $207,481 it paid out as a settlement of the claims raised in Count IV, $10,000 in contract damages, and $20,000 in costs to restore the Berthold typefaces to the Adobe library. However, the complaint also sought treble damages for deceptive and unfair trade practices, and, if successful, would have required Adobe to surrender control over the contents of its library because Berthold was arguing that Adobe was required to retain every licensed typeface in its library. Berthold also objects that, after reducing fees for work on Count IV, it spent only $33,576 on attorneys' fees, Berthold Ex. 6, compared to Adobe's $99,106.72, Reply at 6. Although a comparison in costs is relevant, see Medcom, 200 F.3d ...


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