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Tech Pharmacy Services, LLC v. Alixa RX LLC

United States District Court, E.D. Texas, Sherman Division

December 22, 2017

TECH PHARMACY SERVICES, LLC
v.
ALIXA RX LLC, GOLDEN GATE NATIONAL SENIOR CARE LLC d/b/a GOLDEN LIVINGCENTERS, and FILLMORE CAPITAL PARTNERS, LLC

          MEMORANDUM OPINION AND ORDER

          AMOS L. MAZZANT UNITED STATES DISTRICT JUDGE.

         Pending before the Court is Tech Pharmacy Services, LLC's (“Tech Pharmacy”) Motion for Attorneys' Fees (Dkt. #386). The Court, having considered the motion and relevant pleadings, finds that the motion should be granted.

         BACKGROUND

         Tech Pharmacy filed suit against Defendants Alixa Rx LLC, Golden Gate National Senior Care LLC d/b/a Golden LivingCenters, Fillmore Capital Partners, LLC, Fillmore Strategic Investors, LLC, and Fillmore Strategic Management, LLC (collectively, “Defendants”) asserting claims for patent infringement, breach of contract, fraud, equitable estoppel, and misappropriation of trade secrets (Dkt. #83). Throughout the litigation, Tech Pharmacy was represented by Hogan Lovells and Potter Minton. In September 2017, the parties proceeded to trial on these issues and the jury found that Defendants breached the 2009 Confidentiality Agreement (“2009 Agreement”) and awarded Tech Pharmacy fifteen million dollars in damages.

         Because Tech Pharmacy prevailed on its breach of contract claim, the issue of attorneys' fees was submitted to the jury.[1] The jury found that Tech Pharmacy's reasonable attorneys' fees and expenses for their necessary services was two million dollars (Dkt. #378). Subsequently, on October 31, 2017, Tech Pharmacy submitted this motion for attorneys' fees arguing that the request for attorneys' fees needs to be made through a motion rather than submitted to the jury (Dkt. #386). Defendants filed a response to the motion on November 14, 2017 (Dkt. #389). Tech Pharmacy filed its reply on November 21, 2017 (Dkt. #390), and Defendants filed their sur-reply on November 30, 2017 (Dkt. #393).

         LEGAL STANDARD

         “State law controls both the award of and the reasonableness of fees awarded where state law supplies the rule of decision.” Mathis v. Exxon Corp., 302 F.3d 448, 461 (5th Cir. 2002). Under Texas law, it is the movant that bears the burden of proof to show the reasonable fees they are owed. El Apple I, Ltd. v. Olivas, 370 S.W.3d 757, 760 (Tex. 2012) (citing Hensley v. Eckerhart, 461 U.S. 424, 437 (1983)) (applying substantive federal law because it is a federal cause of action but also discussing Texas's adoption of the lodestar method in other cases). The movant may calculate their reasonable and necessary attorneys' fees using either the lodestar method or the market value method. Id.; AMX Enters. v. Master Realty Corp., 283 S.W.3d 506, 515 (Tex. App.- Fort Worth 2009, no pet.). There are certain causes of action, which require the use of the lodestar calculation. City of Laredo v. Montano, 414 S.W.3d 731, 736 (Tex. 2013). However, even if it is not required, if the movant produces evidence of the lodestar calculation, courts typically apply the lodestar calculation. City of Laredo v. Montano, 414 S.W.3d 731, 736 (Tex. 2013).

         Using the lodestar analysis, the computation of a reasonable attorneys' fee award is a two-step process.[2] El Apple, 370 S.W.3d at 760 (citing Dillard Dep't Stores, Inc. v. Gonzales, 72 S.W.3d 398, 412 (Tex. App.-El Paso 2002, pet. denied)). First, courts determine the reasonable hours spent by counsel and a reasonable hourly rate, and then multiplies the two together to get the base fee or lodestar. Id. (citing Gonzales, 72 S.W.3d at 412). Second, courts adjust the lodestar up or down based on relevant factors, found in Johnson v. Georgia Highway Express, Inc., 488 F.2d 714 (5th Cir. 1974).[3]

         The Johnson factors are:

(1) time and labor required; (2) novelty and difficulty of issues; (3) skill required; (4) loss of other employment in taking the case; (5) customary fee; (6) whether the fee is fixed or contingent; (7) time limitations imposed by client or circumstances; (8) amount involved and results obtained; (9) counsel's experience, reputation, and ability; (10) case undesirability; (11) nature and length of relationship with the client; and (12) awards in similar cases.

Gonzales, 72 S.W.3d at 412 (citing Johnson, 488 F.2d at 717-19). “If some of these factors are accounted for in the lodestar amount, they should not be considered when making adjustments.” Id. (citing Guity v. C.C.I. Enter., Co., 54 S.W.3d 526, 529 (Tex. App.-Houston [1st Dist.] 2001, no pet.)). The lodestar is presumptively reasonable, and should be modified only in exceptional cases. El Apple, 370 S.W.3d at 765.

         ANALYSIS

         Tech Pharmacy argues that a request for attorneys' fees in this case needs to be made by a Rule 54 motion. Accordingly, Tech Pharmacy asks the Court to award $7, 304, 454.15[4] in attorneys' fees, although their total lodestar calculation comes out to $9, 137, 151.30. Defendants argue that the attorneys' fees were properly in front of the jury, but even if not, Tech Pharmacy is not entitled to more than the $2, 000, 000.00 that the jury awarded. The Court will address whether Tech Pharmacy is entitled to attorneys' fees, if attorneys' fees were appropriately before the jury or if it is appropriate for the Court, and then will address the amount of fees sought.

         I. Entitlement to Attorneys' Fees

         Tech Pharmacy argues that the terms of the contract and additionally the Texas Civil Practice and Remedies Code Section 38.001 entitle it to attorneys' fees. Defendants contend that Tech Pharmacy is not entitled to attorneys' fees under Texas Civil Practice and Remedies Code Section 38.001 because Tech Pharmacy did not plead it and did not present the claim to Defendants. However, Defendants admit that Tech Pharmacy is entitled to attorneys' fees under the terms of the contract (Dkt. # 389 at p. 18 (“Finally, although Tech Pharmacy may recover attorneys' fees under the 2009 [Agreement], Tech Pharmacy has failed to satisfy multiple procedural requirements to recover attorneys' fees under Section 38.001 of the Texas Civil Practice and Remedies Code.”) (emphasis added)).

         “Under Texas law, attorney's fees are recoverable as a cost of collection only if authorized by statute or contract.” Richardson v. Wells Fargo Bank, N.A., 740 F.3d 1035, 1037 (5th Cir. 2014) (citing In re Nalle Plastics Family Ltd. P'ship, 406 S.W.3d 168, 172 (Tex. 2013)). Here, both a statute and the contract entitle Tech Pharmacy to attorneys' fees; however, Tech Pharmacy does not need to use both. The terms of the 2009 Agreement, on their own, are enough to recover attorneys' fees. See Mundy v. Knutson Const. Co., 294 S.W.2d 371, 373 (Tex. 1956) (“Since the wording of our bond provides for payment of ‘all costs and expenses' incurred in the prosecution of a suit or suits on a breach of the construction contract, or on that very bond, we feel attorneys' fees so incurred was a proper measure of recovery.”). As such, because Tech Pharmacy is entitled to attorneys' fees under the terms of the contract, the Court need not address whether Tech Pharmacy waived its ability to recover attorneys' fees under Texas Civil Practice and Remedies Code Section 38.001.

         II. Application of Rule 54

         Tech Pharmacy argues that under Federal Rule of Civil Procedure 54, its claim for attorneys' fees under the terms of the 2009 Agreement must be made by a motion. Defendants claim that the terms of the contract contemplate a jury deciding attorneys' fees. Under Federal Rule of Civil Procedure 54(d), “[a] claim for attorney's fees and related nontaxable expenses must be made by motion unless the substantive law requires those fees to be proved at trial as an element of damages.”[5] Accordingly, it is crucial to determine whether attorneys' fees are an element of damages under the 2009 Agreement.

         The Court will first look to Tech Pharmacy's claim for damages according to the terms of the contract. As an example of types of claims that are typically proved at trial as an element of damages, the Advisory Committee Notes lists fees that are “sought under the terms of a contract.” Fed.R.Civ.P. 54(d), Advisory Committee Notes. However, the Advisory Committee Notes do not state that when a party is seeking damages under the terms of a contract, the party must always prove the attorneys' fees at trial as an element of damages.[6] Id. As such, when a party is seeking attorneys' fees under a contract, it is “[t]he language of the contract and the nature of the claim [that] are the dispositive factors concerning whether the fees are an element of damages or collateral litigation costs.” Richardson, 740 F.3d at 1039.

         The Court looks to the language of the contract to determine whether the attorneys' fees in this case are an element of damages or if they are collateral litigation costs. See Id. The contract states:

If any action at law or in equity, including an action for declaratory relief, is brought to enforce or interpret the provisions of this Agreement, the prevailing party shall be entitled to recover costs of court and reasonable attorneys' fees from the other party, which fees shall be in addition to any other relief that may be awarded, and which fees may be set by the court in the trial of such action or may be enforced in a separate action for that purpose.

(Dkt. #386 at p. 3; Dkt. #389 at p. 3 (citing PX115 at § 10)). Tech Pharmacy argues that the language of the 2009 Agreement makes clear that the parties contemplated the Court would determine attorneys' fees and were collateral to damages for breach of the contract. On the other hand, Defendants contend that the language shows the parties considered the possibility that the jury would determine attorneys' fees because of the permissive language in the contract.

         The contractual language is important to determine whether the claim is an element of damages, not whether the parties contemplated the possibility of a jury determining fees.[7] See Fed.R.Civ.P. 54(d); Richardson, 740 F.3d at 1039. In the 2009 Agreement, the parties identified that attorneys' fees “shall be in addition to any other relief that may be awarded, ” and additionally contemplated that the award may be sought “in a separate action.” (Dkt. #386 at p. 3; Dkt. #389 at p. 3 (citing PX115 at § 10)). This language indicates that the attorneys' fees under this contract are “expressly distinguished from the damages that [Tech Pharmacy] incur[red]” from enforcing or interpreting the provisions of the contract.[8] Richardson, 740 F.3d at 1038. As such, “[t]he fees are not an ‘independent ground of recovery.' [Instead, t]hey are costs of collection or costs incurred to” enforce or interpret the contract. Id. Because the attorneys' fees are not compensation for the underlying harm, but are fees awarded for counsels' services according to the terms of the 2009 Agreement, the attorneys' fees are not an element of damages. Therefore, the language of the 2009 Agreement supports Tech Pharmacy's contention that the request for attorneys' fees must be made by motion according to the terms of Rule 54.

         Further, the nature of the claim supports the proposition that attorneys' fees in this case are collateral litigation costs as opposed to an element of damages. Tech Pharmacy was successful on its claim for breach of contract and the damages it was awarded were based on the harm proximately caused by Defendants' breach. Tech Pharmacy's attorneys' fees are not part of the harm it incurred. See Richardson, 740 F.3d at 1037 (quoting In re Nalle, 406 S.W.3d at 172). Attorneys' fees, in this case, are a separate right owed based on the terms of the contract. Because the attorneys' fees are not an element of the claim, based on the language of the 2009 Agreement and the nature of the claim, the request for attorneys' fees must be made by a motion pursuant to Rule 54, and is an issue that is proper for the Court to decide.

         III. Amount of Attorneys' Fees

         Tech Pharmacy claims that “the total fees for professional services that Tech Pharmacy incurred is $14, 608, 908.29.” (Dkt. #386 at p. 11 (citing Dkt. #387, Exhibit 1 at p. 34)). However, Tech Pharmacy “requests an award of [fifty percent] of this amount, or a total of $7, 304, 454.15. . . . This discount reflects Tech Pharmacy's reasonable segregation of its state-law claims from its federal patent infringement cause of action.” (Dkt. #386 at p. 11). Defendants claim the amount of attorneys' fees should not exceed $2, 000.000.00. The Court will analyze Tech Pharmacy's request using the lodestar analysis because this is the calculation Tech Pharmacy chose to prove its fees. See City of Laredo, 414 S.W.3d at 736.

         A. Hours Reasonably Expended.

         Tech Pharmacy asserts that “[t]he total attorney hours expended on this case over a period of almost 2 years is 29, 103.7.” (Dkt. #386 at pp. 11-12). Because Tech Pharmacy only prevailed on its breach of contract claim, Tech Pharmacy represents that this total should be reduced by half, leaving “14, 551.85 of these hours . . . [that] are compensable.” (Dkt. #386 at p. 12). Tech Pharmacy presents that the hours expended are divided as follows:

Hogan

Lovells

Partners:

3, 937.35

Associates:

7, 673.8

Staff:

2, 135.8

Total:

13, 746.95


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