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In-house attorney’s fees can be part of judgment

file-folder-with-money_web620The Appeals Court in Massachusetts has ruled in an issue of first impression that a Chapter 93A counsel-fee award can, as a matter of law, include the work performed by an in-house attorney who was first chair at a 17-day Superior Court trial.

The defendants argued that the $152,906.25 fee request submitted by attorney George Stanbury should be rejected because he failed to include contemporaneous time records for his services and was a full-time salaried employee of the plaintiff company.

But Judge R. Marc Kantrowitz, writing for the Appeals Court panel, disagreed, noting that the question of whether in-house counsel fees are “incurred” for purposes of a Chapter 93A award is “surprisingly, a novel one” in Massachusetts.

“On a practical level … every hour spent on the litigation was an hour when Stanbury’s efforts were directed away from other legal matters facing [the company],” Kantrowitz wrote. “[T]o deny attorney’s fees to [the company] in this case simply because it chose to utilize its own in-house counsel would undercut the deterrent purposes of c. 93A and would implicitly reward the defendants for their questionable behavior.”

The 13-page decision is Holland, et al. v. Jachmann, et al.

Time stamps

Stanbury, who is licensed in California but spends time working in the plaintiff company’s Massachusetts office, conceded that he should have kept time sheets to record the hours he worked on the case.

“If I’d kept contemporaneous records, I think the argument made by the defendants would have had much less punch,” he said. “If you don’t keep contemporaneous records as in-house counsel, you’d better figure out a way to demonstrate the value of the services you’ve provided, which is what we had to do here.”

Superior Court Judge Peter A. Velis relied on time-stamped transcripts from the trial, Stanbury said, which verified when and where he had performed many of his services. Velis noted in his findings that Stanbury, who was admitted on the case pro hac vice, took or defended 18 depositions and did not charge for his travel time.

“You can literally calculate to the minute the time I spent on each day in the trial,” Stanbury said. “The same goes for the depositions, which identifies specific times at which I was actually present deposing or defending depositions in that case.”

On top of that, Velis had the benefit of his own experience to assess the quality of the services the company received, Stanbury said.

While there was no appellate case directly on point, he said, courts in Massachusetts have permitted pro bono attorneys to obtain fees even in cases in which they were not specifically identified as lawyers entitled to receive such an award.

“If you made a rule that said a business successfully using its in-house counsel as its attorney doesn’t get paid for the lost time the attorney spent litigating the case as opposed to doing corporate work for the business, the business would be punished and the wrongdoer would benefit from it,” Stanbury said. “That to me undermines the fundamental policy of the statute.”

Stanbury’s co-counsel, Robert Aronson, a commercial litigator in Springfield, Mass-achusetts, was awarded $71,596 for his services, which the defendants did not challenge.

Aronson said the Appeals Court decision reinforces the notion that Chapter 93A is a statute aimed at protecting consumers and businesses and discouraging defendants from engaging in unfair and deceptive acts. Denying an in-house attorney his fees would undermine that policy, a principle Aronson said he expects to be cited by in-house attorneys in the future.

“If you balance the equities, it’s better to uphold the statute and punish the defendants, rather than give the benefit to the defendants just because Mr. Stanbury was in-house counsel,” he said.

Susan E. Stenger of Burns & Levinson in Boston represented the defendants. She declined to comment.

Peter J. Macdonald, co-chair of WilmerHale’s business trial group, handled a 1998 case in which U.S. District Court Judge Patti B. Saris found that an in-house lawyer who was “merely the client and had little or no participation in the trial” could not recover his fees. The case, Arthur D. Little Intl. v. Dooyang Corp., went up to the 1st U.S. Circuit Court of Appeals and was cited by Kantrowitz.

“Our argument [in Arthur D. Little] was that the general counsel’s fees should’ve been covered because if he weren’t there in our case, we would have had outside lawyers working in his place,” Macdonald said. “Even though the in-house lawyer hadn’t examined witnesses at trial, he had done a lot for us during the course of the trial, so we thought it was reasonable to ask for the fees.”

But an unpersuaded Saris denied the request. The judge did order the defendant in Arthur D. Little to pay Macdonald more than $900,000 in fees.

“Judge Saris drew the line where she drew the line,” noted Macdonald, who now practices out of WilmerHale’s New York office. “I’m glad to see the Court of Appeals in Massachusetts is moving in the direction it seems to be moving [with Holland].”

Verdict is in

Plaintiff Omniglow, which has an office in West Springfield, manufactures light sticks and other luminescent products.

The company entered into a series of agreements in 2005 with defendants Cyalume Technologies and its chief executive officer, Emil Jachmann.

A business dispute soon arose in which Omniglow accused the defendants of acting in bad faith and in breach of their contracts. Omniglow filed suit in Hampden Superior Court.

After a jury-waived trial, the judge awarded the plaintiffs more than $2 million for the defendants’ numerous breaches of contract, conversion and violations of Chapter 93A.

Velis found that the wilful, intentional and “disconcerting” breaches were committed in bad faith and disrupted and jeopardized the plaintiffs’ business.

After several post-trial proceedings, an amended final judgment was entered in July 2012.

On appeal, the defendants raised various issues, including whether Velis properly included Stanbury’s counsel fees as part of the Chapter 93A award.

Active participant

In ordering Stanbury’s fees to be included, Kantrowitz said that Chapter 93A authorizes a fee award for work “incurred” in connection with a suit. Having in-house counsel engaged in the factually and legally complex case had a concrete financial impact on the plaintiffs, he said.

To calculate the fees of an in-house attorney, some jurisdictions have looked at what a private lawyer reasonably would have charged to do the same work. Other courts conduct what Kantrowitz called a “cost-plus analysis,” which takes a proportionate share of the in-house counsel’s salary, “including the cost of overhead, allocable to the matter in question.”

Judges can utilize either method, Kantrowitz said.

Velis arrived at the fee award by noting that Stanbury, who earned $200,000 annually, had previously charged $350 an hour while working in private practice in California. The fact that Stanbury’s co-counsel billed at $225 was of no consequence, Kantrowitz said.

“[Velis] found that $350 was a reasonable hourly rate for a highly experienced attorney working on similarly complex litigation in the Springfield area,” Kantrowitz wrote. “To the extent the defendants challenge Stanbury’s rate as incongruous, we see no abuse of discretion in light of the judge’s description of Stanbury’s role as lead counsel and the evidence concerning the range of rates in the Springfield area.”

Kantrowitz called Stanbury’s failure to provide contemporaneous timesheets “concerning” but not an insurmountable impediment to the fee award. The record was clear Stanbury had “actively participated” as lead counsel during all stages of the case.

“[W]hile the documentation provided to the judge was less than ideal,” Kantrowitz said, “it was sufficient in this case to justify the award of fees.”

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