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Gemshares LLC v. Lipton

United States District Court, N.D. Illinois, Eastern Division

January 2, 2020

GEMSHARES LLC, Plaintiff,
v.
ARTHUR JOSEPH LIPTON and SECURED WORLDWIDE, LLC., Defendants.

          MEMORANDUM OPINION AND ORDER

          MATTHEW F. KENNELLY UNITED STATES DISTRICT JUDGE

         The Court found in favor of plaintiff GemShares LLC as to liability on its claim for breach of contract against defendant Arthur Lipton. The claim involved GemShares' operating agreement, which barred its investors, including Lipton, from competing with the company. Lipton later formed Secured Worldwide LLC (SWW), which applied for a patent on a product that arguably was based on GemShares' intellectual property.

         In a separate federal lawsuit involving SWW and another one of its investors, Cormac Kinney, a court concluded that Lipton had fraudulently represented that SWW had permission to use GemShares' intellectual property. In the present case, the Court concluded that under the doctrine of issue preclusion, the findings in the SWW-Kinney lawsuit precluded Lipton and SWW from disputing the allegation that Lipton had breached the non-compete agreement. GemShares LLC v. Lipton, No. 17 C 6221, 2019 WL 330470, at *5 (N.D. Ill. Jan. 25, 2019).

         In a later ruling, the Court ruled that this entitled GemShares to summary judgment on its breach of contract claim against Lipton. GemShares LLC v. Lipton, No. 17 C 6221, 2019 WL 587392, at *2 (N.D. Ill. Feb. 13, 2019). The Court thereafter denied Lipton's motion for reconsideration. Order of Mar. 18, 2019 (dkt. no. 206). More recently, the Court issued a permanent injunction barring Lipton and SWW from violating the non-compete agreement and also ordered the assignment to GemShares of Lipton's interest in a particular SWW patent application. GemShares LLC v. Lipton, No. 17 C 6221, 2019 WL 3287838, at *4-6 (N.D. Ill. July 2, 2019). In that ruling, the Court left open the question of GemShares' entitlement to attorney's fees under a fee-shifting provision in the operating agreement, because GemShares had asserted other claims that had not yet been adjudicated.

         GemShares has now filed a motion seeking attorney's fees under the operating agreement and 35 U.S.C. § 285 as well as a further injunction directing the assignment to GemShares of any rights that GemShares may retain in the SWW patent application and any other intellectual property within the scope of the non-compete agreement. GemShares represents that once the Court enters a fee award and injunctive relief, it will dismiss its remaining claims, thus concluding the litigation before this Court except for efforts at collection. Pl.'s Mem. in Support of Pl.'s Mot. for Enforcement of Fee Shifting Provision (hereafter Pl.'s Opening Mem.). at 1.

         GemShares has separately moved under Federal Rule of Civil Procedure 64 for an order permitting it to take collection-related discovery and freeze Lipton's assets in anticipation of a judgment.

         The Court addresses both motions in this decision.

         Discussion

         1. Attorney's fees and expenses

         GemShares' fee request under the operating agreement is directed at Lipton, the other contracting party.[1] Its fee request under section 285 is directed at SWW. See Pl.'s Reply Mem. (dkt. no. 323) at 8. GemShares asks to recover fees of $1, 471, 703.65 and expenses of $59, 638.46, for a total of $1, 531, 342.11. In support, it has provided the invoices it received from its attorneys and a summary that breaks down the requested fees by task.

         The Court begins with the request for fees against SWW under 35 U.S.C. § 285. Section 285 does not automatically award fees to the prevailing party (or to a prevailing patent holder) in a suit under the patent laws. Rather, the statute permits a court to award reasonable attorney's fees to the prevailing party only "in exceptional cases." An exception case is "one that stands out from others with respect to the substantive strength of a party's litigating position (considering both the governing law and the facts of the case) or the unreasonable manner in which the case was litigated." Octane Fitness, LLC v. ICON Health & Fitness, Inc., 572 U.S. 545, 554 (2014). "[T]here is no precise rule or formula for making these determinations"; a court considers the totality of the circumstances. Id.

         GemShares, however, makes no attempt to show in its motion how its case against SWW meets the statutory requirement of an "exceptional case." It does not address the point at all. Perhaps there is a viable argument in favor of GemShares' implicit contention that the case is exceptional, but making that argument was GemShares' job, not the Court's job. GemShares has forfeited its request for fees under section 285 by failing to address the point.

         By contrast, there is no question that GemShares is entitled to attorney's fees against Lipton in some amount under the GemShares operating agreement's fee-shifting provision. Section 14.04 of the operating agreement states as follows:

14.04 Prevailing Party's Attorneys' Fees and Costs. Except as may be otherwise expressly provided herein and then only in such limited instances and circumstances as is so otherwise provided, any party who or which shall substantially prevail in any litigation brought to enforce any of the obligations of this agreement or otherwise brought in connection with any dispute regarding this agreement shall be entitled to the payment of reasonable attorneys' fees, court costs, and related legal expenses upon written demand served upon the non-prevailing party or parties. Such non-prevailing parties ...

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