E-Alert Case Updates

Fourth Circuit Applies “Exceptionally Deferential” Standard of Review to District Court’s Award of Attorneys Fees and Costs to Defendant Under Lodestar Analysis

Best Medical International v. Eckert & Ziegler Nuclitec GmbH
Case No. 13-1708 (April 8, 2014)
by Jhanelle A. Graham, Associate
Semmes, Bowen & Semmes (www.semmes.com)

In Best Medical International v. Eckert & Ziegler Nuclitec GmbH, the Fourth Circuit was asked to determine whether the district court properly granted fees and costs to Eckert & Ziegler Nuclitec GmbH (“EZN”), the prevailing party in its litigation against Best Medical International, Inc. and Best Vascular, Inc. (collectively “Best”), by applying the required analysis under Johnson v. Ga. Highway Express, Inc., 488 F.2d 714, 717-19 (5th Cir. 1974). Applying an “exceptionally deferential” standard of review to the district court’s decision, and after a thorough review of the record, the Fourth Circuit affirmed the district court’s judgment for Defendant, EZN.

In 1999, AEA Technology-QSQ GmbH (“QSA”) entered into a manufacturing agreement with one of Best’s predecessors. Under that agreement, QSA was to manufacture “sources” or “source trains” of strontium and sell that product to Best’s predecessor. At the end of that contract, Best was obligated to decontaminate and decommission QSA’s manufacturing production lines in Germany used to make these sources. Best failed to decontaminate the manufacturing line as agreed, so QSA sued to enforce the contractual covenant. QSA and Best settled QSA’s suit under a 2008 Settlement Agreement that provided Best was to complete its decontamination work by a certain date and post a performance bond. Best was also required to buy minimum orders of “source trains” that met defined specifications. Furthermore, the Settlement Agreement provided that “the prevailing party [would] be entitled to recover . . . reasonable attorneys’ fees and costs incurred” in “any litigation” “brought for breach” of the agreement.

The Settlement Agreement soon unraveled. Best did not timely perform the required decontamination work, which caused EZN (having acquired QSA in 2009) to notify Best in 2010 that it planned to do the work at Best’s expense. Best also did not post the performance bond. For its part, Best complained that EZN was producing strontium sources that did not meet the specifications found in the parties’ original manufacturing agreement. Best then initiated a lawsuit raising three (3) principal complaints: (1) that EZN was equitably estopped from conducting the decontamination and decommission task and from disposing of the production line in the course of decontaminating and decommissioning the production line; (2) that EZN breached the Settlement Agreement by not cooperating with Best; and (3) that EZN breached the Settlement Agreement by not providing Best with source trains and sources that met the specifications of the original Manufacturing Agreement. Best Med. Int’l, Inc. v. Eckert & Ziegler Nuclitec GmbH, 505 F. App’x 281, 283 (4th Cir. 2013). Best sought certain injunctive relief (including an injunction to stop EZN from breaking the line down), sought “any monetary damages that [Best] sustained as a result of [EZN]’s actions,” and sought a refund of payments that it made for the supposedly “non-compliant” sources. The parties agreed that Best’s requested relief would have been valued at no less than $8 million.

In response, EZN filed a four-(4) count compulsory counterclaim under Federal Rule of Civil Procedure 13, alleging: (1) that Best breached the Settlement Agreement by failing to post a performance bond; (2) that Best breached the Settlement Agreement by failing to decontaminate and decommission the production line; (3) that Best fraudulently induced EZN to enter into the Settlement Agreement; and (4) that EZN should be awarded declaratory relief stating that Best had defaulted under the Settlement Agreement and that its default relieved EZN from any obligation to dispose of sources. Best Med., 505 F. App’x at 283.

Upon cross motions for summary judgment, the district court ruled largely for EZN. See Best Med. Int’l., Inc. v. Eckert & Ziegler Nuclitec GmbH, No. 1:10-cv-617, 2011 WL 3951675 (E.D. Va. Sept. 7, 2011). The district court held that Best had not adequately established any of its claims. Further, the court determined that two (2) of the four (4) EZN counterclaims had not been shown. As to EZN’s second counterclaim, the court concluded that Best had defaulted on its obligation under the Settlement Agreement to decommission and decontaminate the German production lines, but found that any damages claim should be arbitrated‒under an arbitration clause in the Settlement Agreement‒once EZN completed its own cleanup efforts. The district court dismissed the declaratory judgment count as “moot” because the court had “ruled on all points raised” in that count. Id. at *7.

EZN and Best each moved for attorneys’ fees and costs under the Settlement Agreement. After determining that EZN was the prevailing party, the district court proceeded to determine an appropriate amount of attorneys’ fees and costs. The district court began by detailing the appropriate lodestar analysis—i.e., multiplying the number of reasonable hours by a reasonable fee. The district court acknowledged that it was to assess reasonableness by looking to the twelve (12) factors in Johnson v. Hugo’s Skateway, 974 F.2d 1408, 1418 (4th Cir. 1992). Second, the district court explained that it was to deduct fees for time spent on unsuccessful claims. Third, the district court stated that it was to award some percentage of the remaining fees to account for the degree of success enjoyed by the prevailing party. Applying this analysis, the district court then awarded EZN attorneys’ fees of $584,735.08 and costs of $32,892.61.

In the initial appeal, the Fourth Circuit affirmed all of the district court’s decisions except as to attorneys’ fees and costs. The appellate court concluded that EZN’s fees and costs request “might be unreasonably excessive in the absence of an analysis of the applicable factors,” which the district court had conducted “only in the most conclusory manner.” Best Med., 505 F. App’x at 284. Therefore, the Fourth Circuit vacated the fee and cost award so that the district court could fully consider the Johnson factors on remand. Thereafter, the district court awarded EZN all of its requested fees and costs after the voluntary reductions, under Johnson, were applied.

On appeal from the district court for a second time, the Fourth Circuit explained that the standard of review in an appeal from an award of attorneys’ fee is “exceptionally deferential,” as it applies a “sharply circumscribed” version of the Court’s traditional abuse-of-discretion standard. Robinson v. Equifax Info. Servs., LLC, 560 F.3d 235, 243 (4th Cir. 2009). Under that standard, “the fee award must not be overturned unless it is clearly wrong.” Id. In addition, “[the Court] will not ordinarily disturb the award even though [it] might have exercised th[e] discretion [to award fees] quite differently.” Johnson, 974 F.2d at 1418 (quotation marks omitted). The appellate court noted that under this standard of review, Best had a heavy burden to present a case on appeal that warrants our overturning the district court’s determinations. Further, the Fourth Circuit stated that not only would another reversal continue this long-running dispute, but it would also invite future litigants to transform their attorneys’ fees disputes into standalone pieces of major appellate litigation. According to the Court, encouraging this sort of never-ending review would conflict with one (1) of the most often repeated maxims in the attorneys’ fee context: “[a] request for attorney’s fees should not result in a second major litigation.” Hensley v. Eckerhart, 461 U.S. 424, 437 (1983). Keeping this deferential standard of review in mind, the appellate court turned to the merits of the dispute.

The Court opined that, “The proper calculation of an attorney’s fee award involves a three-step process.” McAfee v. Boczar, 738 F.3d 81, 88 (4th Cir. 2013). “First, the court must determine the lodestar figure by multiplying the number of reasonable hours expended times a reasonable rate.” Id. (quotation marks omitted). At this step, the court should consider the Johnson factors:

(1) The time and labor expended, (2) the novelty and difficulty of the questions raised, (3) the skill required to properly perform the legal services rendered, (4) the attorney’s opportunity costs in pressing the instant litigation, (5) the customary fee for like work, (6) the attorney’s expectations at the outset of the litigation, (7) the time limitations imposed by the client or circumstances, (8) the amount in controversy and the results obtained, (9) the experience, reputation, and ability of the attorney, (10) the undesirability of the case within the legal community in which the suit arose, (11) the nature and length of the professional relationship between attorney and client, and (12) attorneys’ fees awards in similar cases.

Johnson, 488 F.2d at 88 n.5. Second, the court “must subtract fees for hours spent on unsuccessful claims unrelated to successful ones.” McAfee, 738 F.3d at 88 (quotation marks omitted). Third, and finally, the court “should award some percentage of the remaining amount, depending on the degree of success enjoyed by the [party].” Id. at 88 (quotation marks omitted).

After carefully reviewing the record and the parties’ arguments, the appellate court found no basis to reverse the district court’s determination that the attorneys’ fee award was reasonable. Rather, the Fourth Circuit observed that the district court applied the correct legal and factual criteria. Best did not raise any objection to half of the lodestar analysis―the reasonableness of the rates of EZN’s counsel―but instead directed many of its objections to the reasonableness of EZN’s claimed hours. Finding that the district court carefully applied the Johnson factors to measure the reasonableness of those hours and appropriately determined that they reflected an exercise of billing judgment, the Fourth Circuit affirmed the district court’s judgment on attorneys’ fees and costs.