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VIGORTONE AG PRODUCTS, INC. v. PM AG PRODUCTS

August 11, 2004.

VIGORTONE AG PRODUCTS, INC., formerly known as Provimi Acquisition Corporation, Plaintiff,
v.
PM AG PRODUCTS, INC., Defendant.



The opinion of the court was delivered by: HARRY LEINENWEBER, District Judge

MEMORANDUM OPINION AND ORDER

Plaintiff Vigortone Ag Products, Inc. (hereinafter referred to as "Vigortone") filed this suit against PM Ag Products, Inc. (hereinafter, "PM Ag") in 1999, asserting, among other things, claims of fraud and breach of contract in connection with sale of Vigortone, Inc., a former subsidiary of PM Ag. Following a trial before this Court, which resulted in a jury verdict against PM Ag for fraud and breach of contract, PM Ag appealed from the judgment against it. The Seventh Circuit reversed the fraud verdict, holding that the jury's finding of justifiable reliance lacked sufficient evidentiary basis, and remanded the case for a new trial on the breach of contract claim. At the second trial, a jury returned a verdict in favor of Vigortone in the amount of $2,100,000 on its breach of contract claim. The Court thereafter allowed $1,208,794 in prejudgment interest. Before the Court are Vigortone's motion for attorney fees and bill of costs. Vigortone requests $2,949,282 in attorney fees and $150,516.61 in costs arising from this litigation. For the reasons stated below, the Court grants Vigortone's motion for attorney fees, with modification, in the amount of $2,481,596 and bill of costs in the amount of $43,418.03.

I. DISCUSSION

  A. Attorney Fees: Choice of Law

  The asset purchase agreement (the "Agreement") at issue here contains a general choice of law provision indicating that Delaware law should govern the entire contract. This Court previously applied Delaware law to the issue of attorney fees from the first trial, and therefore this is effectively the law of the case. See Vigortone AG Prods., Inc. v. PM AG Prods., Inc., No. 99 C 7049, 2001 U.S. Dist. LEXIS 21409, at *3-*4 (N.D. Ill. Dec. 21, 2001). In addition, the parties appear to agree that Delaware law controls the issue of attorney fees.

  The Agreement requires PM Ag to "indemnify and hold [Vigortone] harmless from and against any and all losses and expenses incurred by [Vigortone] in connection with or arising from" PM Ag's breach of warranties contained in the agreement. See Agreement § 9.1. The Agreement defines expenses to include "any and all expenses reasonably incurred in connection with investigating, defending, or asserting any claim, action, suit, or proceeding" incident to any matter indemnified against under the Agreement including "reasonable fees and disbursements of legal counsel, investigators, expert witnesses, consultants, accountants, and other professionals." Agreement at 3-4. Delaware courts follow the American rule holding litigants responsible for paying their own attorney fees in the absence of either statutory or contractual fee shifting. See Burge v. Fidelity Bond & Mortgage Co., 648 A.2d 414, 421 (Del. 1994). Delaware courts routinely enforce provisions of a contract allocating litigation costs, including attorney fees, arising from the breach of the contract. See Knight v. Grinnage, No. 14823, 1997 Del. Ch. LEXIS 133, at *9 (Del.Ch. 1997); Bickford v. Smithson, No. 2002-05-187, 2003 Del. C.P. LEXIS 46, at *3-*4 (Del. Ct. Com. Pl. 2003). When evaluating the reasonableness of attorney fees sought pursuant to a contract, Delaware courts employ the factors set forth in Rule 1.5 of the Delaware Lawyers' Rules for Professional Conduct. See Council of the Wilmington Condo. v. Wilmington Ave. Assocs., L.P., No. 94C-09-004, 1999 Del. Super. LEXIS 460, at *5-*7 (Del.Super.Ct. 1999); Princess Hotels, Int'l, Inc. v. Del. State Bar Ass'n, No. 95C-01-062, 1998 Del. Super. LEXIS 189, at *16-*20 (Del.Super.Ct. 1998). These factors include: (1) the time and labor required, the novelty and difficulty of the questions involved, and the skill requisite to perform the legal service properly; (2) the likelihood, if apparent to the client, that the acceptance of the particular employment will preclude other employment by the lawyer; (3) the fee customarily charged in the locality for similar legal services; (4) the amount involved and the results obtained; (5) the time limitations imposed by the client or by the circumstances; (6) the nature and length of the professional relationship with the client; (7) the experience, reputation, and ability of the lawyer or lawyers performing the services; and (8) whether the fee is fixed or contingent. Del. Prof. Cond. R. 1.5. Consistent with this Delaware law, this Court used the factors enumerated in Rule 1.5 to determine the reasonableness of attorney fees after the first trial. See Vigortone, 2001 U.S. Dist. LEXIS 21409, at *5-*6.

  Vigortone argues that this Court previously erred in applying Rule 1.5 to the attorney fee provision in this case. (The Court will assume arguendo that Vigortone can properly raise this issue at this point in the litigation and therefore circumvent the law of the case doctrine. Cf. Pl. Resp. to Def. MIL No. 1, p. 7, (arguing that the law of the case precluded argument of trial court rulings that had not been disturbed on appeal)). First, Vigortone asserts that Delaware law supports this position and that Delaware courts primarily apply Rule 1.5 to statutory attorney fee awards, rather than to attorney fee awards pursuant to contractual provisions. Vigortone cites two cases from the Court of Common Pleas of Delaware to support its position. See Wright v. Quality Sec. Alarms, Inc., No. 95-09-208, 1997 Del. C.P. LEXIS 18 (Del. Ct. Com. Pl. 1997), and Feeney v. Siler, No. 96-07-0055, 1997 WL 33471244 (Del. Ct. Com. Pl. 1997) (unpublished opinion). While these cases do not explicitly mention Rule 1.5, the primary factor for determination of reasonable attorney fees discussed in each of them is essentially the fourth factor in Rule 1.5: the amount at stake and the results obtained in the litigation. See Feeney, 1997 WL 33471244, at *1; Wright, 1997 Del. C.P. LEXIS 18, at *1-*2. As a court may reduce an attorney fee award pursuant to a contractual provision based on this factor alone under Delaware law, see Fasciana v. Elec. Data Sys. Corp., 829 A.2d 178, 185 (Del.Ch. 2003), the lack of discussion of the other Rule 1.5 factors in some Delaware cases does not necessarily indicate that Delaware courts are reluctant to apply the Rule 1.5 factors when contract-based attorney fees are at issue. More significantly, there is affirmative case law in Delaware that explicitly applies Rule 1.5 to contractual provisions concerning attorney fees. See Council of the Wilmington Condo, 1999 Del. Super. LEXIS 460, at *5-*7; Princess Hotels, 1998 Del. Super. LEXIS 189, at *16-*20; Roven, 1991 Del. Super. LEXIS 94, at *1-*4. As a result, Vigortone's position on this issue is unpersuasive.

  Vigortone also argues that the Court should not apply Rule 1.5 here because the Seventh Circuit does not apply an Illinois rule similar to Rule 1.5 in diversity cases involving contractual attorney fee provisions. See Medcom Holding Co. v. Baxter Travenol Labs., Inc., 200 F.3d 518 (7th Cir. 1999). As noted above, however, Delaware law controls here, and thus the Seventh Circuit's view of Illinois law regarding attorney fees is not pertinent.

  B. Attorney Fees: Effect of Partial Success in the Litigation

  Under Delaware law, a trial court has discretion in determining the whether an attorney fee is reasonable under Rule 1.5. See Mercedes-Benz of N. Am., Inc. v. Norman Gershman's Things to Wear, Inc., 596 A.2d 1358, 1367 (Del. 1991); Roven, 1991 Del Super. LEXIS 94, at *3. Under Rule 1.5, Delaware courts give significant weight to the result of the litigation. See Fasciana, 829 A.2d at 185; Wright, 1997 Del. C.P. LEXIS 18, at *1-*2. As the "extent of a [prevailing party's] success is a crucial factor in determining the proper amount of an attorney fee award," a court may reduce the size of the award to a prevailing party if that party only achieved partial success. Fasciana, 829 A.2d at 185 (quoting Hensley v. Eckerhart, 461 U.S. 424, 440 (1983)); see Mercedes-Benz, 596 A.2d at 166-67.

  In the instant case, Vigortone seeks indemnification for attorney fees arising from a fraud in the inducement claim and five breach of warranty claims. As an initial matter, PM contends that the contractual provision providing for attorney fees incurred by Vigortone in connection with or arising from PM's breach of warranties does not allow Vigortone to recover fees for asserting a fraud claim. In Bickford, however, a Delaware court held that the responsible party was liable for attorney fees arising from both a fraud and breach of contract claims under a clause providing for attorney fees arising from "a dispute . . . under [the] contract." 2003 Del. C.P. LEXIS 46, at *5. If a fraud claim arises "under [a] contract," then it may be connected with or arise from a breach of contract under Section 9.1.

  Here, the fraud claims arose from the same operative facts surrounding the warranty claims. Vigortone's fraud and breach of warranty claims were based on a single course of wrongful conduct involving misrepresentations concerning the so-called pig "pass-through" program. See Bickford, 2003 Del. C.P. LEXIS 46, at *5-*6 (holding that claims alleging fraud and breach of contract resulting from conduct purported to result in a breach of contract arose from the same disputed facts). Accordingly, the Court considers the fraud claim to fall within the scope of Section 9.1.

  At the end of the road, Vigortone prevailed on two of its breach of warranty claims, but lost the fraud and other breach of warranty claims. Delaware courts have adopted the guidelines set out by the Supreme Court in Hensley for calculating the proper amount of an attorney fee award where the prevailing party only partially prevails on his claims. See Mercedes-Benz, 596 A.2d at 1366; Fasciana, 829 A.2d at 184-85. Where a lawsuit consists of related claims, the prevailing party should not have its attorney fee reduced simply because it did not prevail on all of the contentions it raised. Hensley, 461 U.S. at 440. However, where the prevailing party achieved only limited success, a court should award "only the amount of fees that is reasonable in relation to the results obtained." Id. In such cases, a reduced fee award is appropriate if the relief, however significant, is limited in comparison to the scope of the litigation as a whole, but the prevailing party should recover his full attorney fee if he has "obtained excellent results." Id. at 435, 440.

  The Supreme Court did not articulate a precise rule or formula for the determination of whether a prevailing party has obtained "excellent results" or limited success. See Spanish Action Comm., 811 F.2d at 1133. The trial court has discretion in making this determination. See Hensley, 461 U.S. at 437. Here, Vigortone was unsuccessful on two-thirds of its claims as it lost its fraud claim and three out of five breach of warranty claims. Of course, this is simply a numerical tally of counts and does not necessarily reflect the relative importance of the counts. However, when the Court concurrently considers the damages award, it is clear that Vigortone received only limited success. Specifically, Vigortone sought $16,000,000 in damages, but received only $2,100,000, plus $1,208,794 in prejudgment interest, resulting in a total award of $3,308,794. (PM Ag contends that Court should use the jury award without adding prejudgment interest for the purposes of Hensley analysis. However, prejudgment interest must be considered part of the damages award, provided that Vigortone did not engage in inordinate delay in prosecuting this case — which it did not. See Library of Congress v. Shaw, 478 U.S. 310, 321 (1986); Moskowitz v. Mayor & Council of Wilmington, 391 A.2d 209, 210-11 (Del. 1978)).

  A court need not take a "mathematical approach comparing the total number of issues in the case with those actually prevailed upon." Mercedes-Benz, 596 A.2d at 1367 (quoting Hensley, 461 U.S. at 435). Thus, the Delaware Supreme Court has affirmed a finding of limited success resulting in a reduction in an attorney fee award when the prevailing party only lost on one of four claims. See id. at 1367. Applying this framework to the instant case, the Court concludes that Vigortone did not obtain an excellent result, but rather achieved limited success given both the small number of claims it was successful on and the small damage award it obtained. Accordingly, Vigortone is not entitled to the full $2,949,282 in attorney fees requested, which is nearly 90% of Vigortone's total recovery. Instead, Vigortone is entitled to a discounted fee award that "is reasonable in relation to the results" obtained. Fasciana, 829 A.2d at 186.

  Where the prevailing party obtains only partial relief and the number of attorney's hours reasonably expended on the litigation as a whole is excessive as compared to the results obtained, the Court may identify specific time that should be eliminated or may simply reduce the award to account for the prevailing party's limited success. See Henley, 461 U.S. at 436-37; Mercedes-Benz, 596 A.2d at 1367. Thus, Vigortone's contention that the difficulty in parsing attorney fees incurred on a claim-by-claim basis precludes the Court from reducing the attorney fee award from the fully compensatory amount requested is incorrect. The Court agrees with Vigortone that parsing expenses incurred on a claim-by-claim basis in this case would be difficult given the relatedness of the claims. Therefore, the Court elects simply to reduce the attorney fee award to an amount that is reasonable in relation to the results Vigortone obtained in this litigation.

  In considering Vigortone's first motion for attorney fees after the first trial, this Court concluded that the fees Vigortone requested did not run afoul of any of the Rule 1.5 factor except for the fourth factor addressing the amount involved and the results obtained in the litigation. Vigortone AG Prods., 2001 U.S. Dist. LEXIS 21409, at *6. Likewise, nothing in the record indicates that the requested fees incurred after that point could be considered unreasonable under any factor other than the fourth one. However, considerations of the amount involved and the results obtained in the litigation alone are sufficient to warrant a reduction in a fee award below a fully compensatory amount. See Fasciana, 829 A.2d at 185.

  Following the first trial, the Court determined that a fee award representing one-third of recovery on the contract claim was appropriate. The Court, of course, is not bound to the one-third determination in the present instance because the litigation has evolved and changed dramatically since the first trial.

  Specifically, a substantial amount of the attorney fees incurred by Vigortone since the first trial were the result of motion practice addressing complex legal and evidentiary issues that resulted from the appellate decision. In addition, the Court notes that PM Ag forced Vigortone to relitigate several issues. When the losing party litigates tenaciously, causing the prevailing party to incur additional attorney fees, courts account for the additional fees in crafting the attorney fee award. See City of Riverside v. Rivera, 477 U.S. 561, 581 n. 11 (1986); Kallman v. Tandy Corp., No. 99 C 490, 2001 U.S. Dist. LEXIS 7794, at *4 (N.D. Ill. June 11, 2001). The significant attorney fees that Vigortone incurred to get this case to a second trial may not be reflected in the actual jury award. But without these substantial efforts in the face of a ...


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