Tag: Litigation

U.S. Supreme Court: Federal Court Could Not Enjoin State Court from Addressing Class Certification Issue

Posted yesterday at the National Law Review by Scott T. Schutte of Morgan, Lewis & Bockius LLP a great overview of  the U.S. Supreme Court’s recent ruling  in Smith v. Bayer Corp.   

In a decision with implications for companies facing class action litigation, the U.S. Supreme Court ruled unanimously that a federal district court, having rejected certification of a proposed class action, could not take the additional step of enjoining a state court from addressing a motion to certify the same class under state law. In an opinion authored by Justice Kagan, the Court inSmith v. Bayer Corp., No. 09-1205, 564 U.S. ____ (June 16, 2011), held that principles of stare decisis and comity should have governed whether the federal court’s ruling had a controlling or persuasive effect in the later case, and the state court should have had an opportunity to determine the precedential effect (if any) of the federal court ruling.

Facts of Bayer

In Bayer, a plaintiff sued in West Virginia state court alleging that Bayer’s pharmaceutical drug Baycol was defective. After removal to federal court, the plaintiff moved to certify the action as a class action on behalf of all West Virginia purchasers of Baycol. The federal court rejected class certification because proof of injury from Baycol would have required plaintiff-specific inquiries and therefore individual issues of fact predominated over common issues. It then dismissed the plaintiff’s claims on independent grounds.

A different plaintiff, who had been a putative class member in the first action and was represented by the same class counsel in the federal action, moved to certify the same class in West Virginia state court. Bayer sought an injunction from the federal court in the first case, arguing that the court’s rejection of the class bid should bar the plaintiff’s relitigation of the same class certification question in state court. The district court granted the injunction, and the Circuit Court affirmed.

The Supreme Court’s Decision

The issues before the Court were (i) the district court’s power to enjoin the later state-court class action to avoid relitigation of the previously decided classcertification determination; and (ii) whether the federal court’s injunction complied with the Anti-Injunction Act, 28 U.S.C. § 2283, which permits a federal court to enjoin a state court action when necessary to “protect or effectuate its judgment.” The Court granted certiorari to resolve a circuit split concerning the application of the Anti-Injunction Act’s relitigation exception.

The Supreme Court overturned the injunction. It determined that enjoining the state court proceedings under the circumstances of the case was improperly “resorting to heavy artillery.” The Court noted that “[d]eciding whether and how prior litigation has preclusive effect is usually the bailiwick of the second court.” It observed that a federal court may under the relitigation exception to the Anti-Injunction Act enjoin a state court from relitigating an already decided issue-including whether to certify a case as a class action-when two conditions are met: “First, the issue the federal court decided must be the same as the one presented in the state tribunal. And second, [the party in the later case] must have been a party to the federal suit, or else must fall within one of a few discrete exceptions to the general rule against binding nonparties.” Notably, the Court commented that, in conducting this analysis, “every benefit of the doubt goes to the state court” being allowed to determined what effect the federal court’s prior ruling should be given.

The Court held that neither condition was met in Bayer. The issue of class certification under West Virginia’s Rule 23 (the language of which mirrored Federal Rule of Civil Procedure 23) was not “the same as” the issue decided by the federal court because the West Virginia Supreme Court had expressly disapproved of the approach to the “predominance” analysis adopted by federal courts interpreting the federal class action rule. In addition, the Court also held that unnamed persons in a proposed class action do not become parties to the case if the court declines to certify a class. By contrast, the Court affirmed the established rule that “a judgment in a properly entertained class action is binding on class members in any subsequent litigation.”

According to the Court, Bayer’s “strongest argument” centered on a policy concern that, after a class action is disapproved, plaintiff after plaintiff may relitigate the class certification issue in state courts if not enjoined by the original court. The Court suggested that these concerns were ameliorated by the Class Action Fairness Act of 2005, through which Congress gave defendants a right to remove to federal court any sizable class action involving minimal diversity of citizenship. The Court noted the availability of consolidating certain federal class actions to avoid inconsistent results and offered that the Class Action Fairness Act’s expanded federal jurisdiction should result in greater uniformity among class action decisions and in turn reduce serial relitigation of class action issues.

Implications of Bayer

Bayer exposes defendants to the potential for repetitive class action litigation by plaintiffs in state courts. Bayer does not alter existing standards for class certification, however, and its holding is a limited one: a defendant who has defeated class certification may not invoke the “heavy artillery” of an injunction against future state-court bids for class certification in a case raising the same legal theories unless that future bid is advanced by the same named plaintiff(s) (or a person who falls within one of the few discrete exceptions to the general rule against binding nonparties) and the defendant can establish that state standards for class certification are similar to Federal Rule 23. In this regard, the Court held that “[m]inor variations in the application of what is in essence the same legal standard do not defeat preclusion,” but if the state courts would apply a “significantly different analysis” than the federal court, an injunction will not be upheld. The Anti-Injunction Act analysis from Bayer applies directly only where the enjoining court is a federal court and the second court is a state court.

The Bayer opinion also highlights avenues for companies facing serial class actions to mitigate risk. The Court all but acknowledged that “class actions raise special problems of relitigation.” These relitigation problems in the class action context and beyond will remain after Bayer. But a number of strategic steps can be taken to reduce the burdens, expenses, and risks associated with multiple lawsuits. For example, the enactment of the Class Action Fairness Act provides expanded federal jurisdiction over many class actions and therefore permits enhanced removal opportunities for state court class actions. If subsequent class actions are filed and removed, the Court noted that multidistrict litigation proceedings may be available for coordination of pretrial proceedings to avoid repetitive litigation. Even if transfer and consolidation cannot be effectuated, the Court observed that “we would expect federal courts to apply principles of comity to each other’s class certification decisions when addressing a common dispute.”

Finally, the Court’s treatment of absent class members as nonparties to the class certification question in the first action may have significance to other issues in class actions, including often hotly disputed issues relating to communications with putative class members by the defendant before class certification.

Copyright © 2011 by Morgan, Lewis & Bockius LLP. All Rights Reserved.

 

Microsoft Corp. v. i4i Limited Partnership et al.: Supreme Court Observations

Posted today at the National Law Review  by Robert Greene Sterne  and Nirav N. Desai of Sterne, Kessler, Goldstein & Fox P.L.L.C  a great recap of today’s U.S. Supreme Court ruling in Microsoft Corp. v. i4i Limited Partnership et al.

In Microsoft v. i4i, the U.S. Supreme Court today unanimously (8-0) affirmed the clear and convincing evidence standard for invalidating issued U.S. patents under Section 282 of the Patent Act (1952).  In 2007, i4i sued Microsoft in U.S. District Court for infringement of i4i’s patent. As part of its defense, Microsoft asked for a jury instruction reciting a preponderance of the evidence standard for finding i4i’s patent invalid, rather than the long-standing clear and convincing evidence standard.  The District Court rejected Microsoft’s lower standard of proof, and a jury found that the patent was valid and that Microsoft infringed, awarding i4i a 9 figure damages sum.  Microsoft appealed to Federal Circuit, asserting in particular, that the District Court improperly instructed the jury on the standard of proof for invalidity.  The Federal Circuit affirmed the lower court’s holding and Microsoft petitioned the Supreme Court for certiorari, which was granted.

In its argument to the Supreme Court, Microsoft argued that either (1) a defendant in a patent infringement action need only convince the jury that an issued patent is invalid by a preponderance of the evidence standard, or (2) alternatively, that at the very least, the preponderance of the evidence standard should apply to evidence that was never considered by the PTO during examination.  The Supreme Court in its decision rejected both of Microsoft’s arguments.

In its decision, the Court first focused on the language of Section 282, which specifies that “[a] patent shall be presumed valid” and “[t]he burden of establishing invalidity of a patent … shall rest on the party asserting such invalidity.”  Microsoft had argued that Federal Circuit precedent establishing a clear and convincing evidence standard was not supported by the 1952 Act because Section 282 did not explicitly set forth that standard.  The Supreme Court noted that, while the statute includes no express articulation of the standard of proof, the statute does use the term “presumed valid,” which has a settled meaning in the common law.  Relying on its long-standing decision in Radio Corporation of America (RCA) v. Radio Eng’g Labs., Inc., 293 U.S. 1 (1934), the Court found that the common law jurisprudence dating back to the 19th century reflects that Microsoft’s proposed preponderance standard of proof “was too ‘dubious’ a basis to deem a patent invalid.”  According to the common law, the Court held, “a defendant raising an invalidity defense bore a ‘heavy burden of persuasion,’ requiring proof of the defense by clear and convincing evidence.”

The Court also noted that the Federal Circuit has interpreted Section 282 to require this clear and convincing evidence standard for nearly 30 years. And while Congress has amended the patent laws several times since the Patent Act was passed, “the evidentiary standard in § 282 has gone untouched.”  The Court concluded that Congress is well aware of the Federal Circuit’s treatment of the statute, but thus far has not amended the statute, and further that “[a]ny re-calibration of the standard of proof remains in [Congress’s] hands.”

The practical implications of the decisions are many.  First and foremost, the decision preserves the status quo, which in turn maintains the strength of U.S. patents and current patent enforcement mechanisms, particularly as they relate to innovation, business certainty, and job creation.  The Court has also sent a clear signal that, in view of well-established jurisprudence, if the standard is to change, it must be done by Congress, as any such change would have a profound ripple effect on the entire patent system.

© 2011 Sterne Kessler

U.S. Supreme Court Establishes State-of-Mind Requirement for Inducing Infringement Liability

As posted in the National Law Review yesterday by R. (Ted) Edward Cruz of Morgan, Lewis & Bockius LLP – a good overview of the knowledge a patent infringement plaintiff needs to prove:

Today (May 31), the U.S. Supreme Court issued its decision in Global-Tech Appliances, Inc., et al. v. SEB S.A., No. 10-6 (2011), holding that to prove inducing infringement under 35 U.S.C. § 271(b) a plaintiff must prove that the infringer had knowledge that “the induced acts constitute patent infringement.” The Court also held that this knowledge requirement can be satisfied by evidence of “willful blindness.”

Morgan Lewis represented SEB in this case. The leader of our U.S. Supreme Court and Appellate Litigation Practice, Ted Cruz, argued the case on February 23. In today’s decision, by an 8-1 vote, our client prevailed.

On the facts of the case, SEB had developed an innovative method to produce household deep fryers and received a U.S. patent for this invention. A foreign competitor, Global-Tech Appliances, purchased one of SEB’s fryers in Hong Kong where it would not have patent markings, reverse-engineered SEB’s fryer, and then copied the SEB fryer’s unique technology. Global-Tech hired a patent attorney to conduct a patent search, but deliberately chose not to tell that attorney that its fryer was a copy of another company’s commercially successful fryer. The attorney did not locate SEB’s patent in its patent search. Global-Tech then sold its fryers to U.S. companies to sell within the United States. SEB sued Global-Tech for patent infringement and inducing infringement, and the jury found for SEB on all counts.

On appeal, Global-Tech challenged the finding on inducing infringement liability due to a lack of evidence of its actual knowledge of SEB’s patent. Section 271(b) provides that “[w]hoever actively induces infringement of a patent shall be liable as an infringer.” Over the last two decades, the Federal Circuit has offered various formulations of what mental-state requirement must be proven to establish liability under § 271(b). On appeal in this case, the Federal Circuit held that the mental-state requirement could be satisfied by evidence of “deliberate indifference of a known risk that a patent exists” and that Global-Tech’s actions constituted such deliberate indifference.

The Supreme Court rejected the Federal Circuit’s analysis but nonetheless affirmed the judgment. The Court held that inducing infringement liability under § 271(b) requires evidence that the infringer had knowledge that “the induced acts constitute patent infringement.” Adopting the argument advanced by SEB, the Court held that this knowledge requirement could be satisfied by evidence of “willful blindness.” After analyzing the record, the Court held that the judgment for SEB could be affirmed based on the evidence of Global-Tech’s willful blindness. The Court focused on Global-Tech’s decision to purchase the fryer to reverse-engineer it overseas (where it would not have U.S. patent markings) and then to deliberately withhold from its attorney the basic information that its fryer was a copy of SEB’s fryer.

This decision clears up an issue of long-standing confusion in the Federal Circuit as to the mental-state requirement of § 271(b). The Court’s explication of the standard should be welcome news to both innovators and holders of patents. The decision prevents frivolous claims of inducing infringement by requiring proof of knowledge of infringement. At the same time, it allows companies to protect their intellectual property rights against those companies that willfully blind themselves to a lawful patent in order to copy a commercially successful product. Corporations hiring attorneys to conduct patent searches should be sure to disclose to their attorneys any products copied or relied upon in developing a new technology.

Copyright © 2011 by Morgan, Lewis & Bockius LLP. All Rights Reserved.

Prevailing Antitrust Defendants Recover $367,000 in e-Discovery Costs

Posted yesterday at the National Law Review by Eric S. O’Connor  of  Sheppard Mullin – a recent case out of the Western District of PA – Race Tires America v. Hoosier Racing Tire Corp., where prevailing antitrust defendants were awarded  by the court $367,000 in e-discovery costs incurred by their vendor. 

Recently, prevailing antitrust defendants were awarded $367,000 in e-discovery costs incurred by their vendor. See Race Tires America v. Hoosier Racing Tire Corp., 2011 WL 1748620 (W.D. Pa. May 6, 2011). While the Court labeled the facts as “unique” and that its holding was limited, the Court’s opinion is very thorough and the facts may be familiar to many antitrust defendants.

In today’s age where the costs of e-discovery can run several hundred thousand dollars or more and outside vendors are routinely hired to help, this holding can be used as a shield and a sword. During discovery, a party can alert the other side that aggressive discovery requests and a demand for many electronic search terms is a major factor in awarding costs of e-discovery – if the responding party prevails. And, if a party should prevail, the potential for an award of the costs of e-discovery can be an additional bonus and/or leverage for any post-verdict resolution without appeal.

The facts are simple. Plaintiff Specialty Tires America (STA) brought antitrust claims against Hoosier Racing, its tire supplier competitor, and Dirt Motor Sports, Inc. d/b/a World Racing Group, a motorsports racing sanctioning body. STA claimed that a so-called “single tire rule” by various sanctioning bodies like Dirt Motor Sports, as well as the related exclusive supply contracts between some of these sanctioning bodies and Hoosier violated Section 1 and 2 of the Sherman Act and caused STA in excess of $80 million in damages. See Race Tires America v. Hoosier Racing Tire Corp., 614 F. 3d 57, 62-73 (3d Cir. 2010). The District Court granted summary judgment in favor of defendants finding that STA had failed to demonstrate antitrust injury, and the Third Circuit Court of Appeals affirmed. Id. at 83-84.

The normal rule that “costs — other than attorney’s fees — should be allowed to the prevailing party” (Fed. R. Civ. P. 54(d)(1)) creates a “strong presumption” that all costs authorized for payment will be awarded to the prevailing party, so long as the costs are enumerated in 28 U.S.C. § 1920, the general taxation-of-costs statute. As prevailing parties, the defendants each filed a Bill of Costs in which the majority of amounts requested were e-discovery costs. Plaintiff objected arguing that e-discovery costs were not taxable under 28 U.S.C. § 1920(4).


Section 1920(4) allows recovery of “[f]ees for exemplification and the costs of making copies … necessarily obtained for use in the case.” 28 U.S.C. § 1920(4). There are two statutory interpretation questions that have divided Courts. First, costs of electronic scanning of documents can be recoverable as “necessary” or unrecoverable as a mere “convenience.”

The other issue takes a few different forms, but focuses on whether the terms “exemplification” and “copying”, which originated in the world of paper, should be limited to physical preparation or rather updated to take into account changing technology and e-discovery. The Court discussed a litany of these cases. Some courts that have applied § 1920(4) to today’s e-discovery demands, have limited exemplification and copying to just the costs for scanning of documents, which is considered merely reproducing paper documents in electronic form, and refused to extend the statute to cover processing records, extracting data, and converting files. Courts are also divided on whether extracting, searching, and storing work by outside vendors are unrecoverable paralegal-like tasks, or whether such costs are recoverable because outside vendors provide highly technical and necessary services in the electronic age and which are not the type of services that paralegals are trained for or are capable of providing.

In this case, because the Court and the parties anticipated that discovery would be in the form of electronically stored information and because plaintiff aggressively pursued e-discovery (e.g., directing 273 discovery requests to one defendant and imposing over 442 search terms), defendants’ use of e-discovery vendors to retrieve and prepare e-discovery documents for production was recoverable as an indispensable part of the discovery process. The Court also found that the vendor’s fees were reasonable, especially because the costs were incurred by defendants when they did not know if they would prevail at trial.

The Court also denied the plaintiff’s request for a Special Master to assess the reasonableness of e-discovery costs incurred by the prevailing defendants as an unnecessary cost and delay.

Copyright © 2011, Sheppard Mullin Richter & Hampton LLP. 

Implementing Effective Litigation Holds

Posted this week at the National Law Review by Laura Broughton Russell and David L. Woodard of Poyner Spruill LLP – Important things for Employers to Consider about Litigation Holds:

Does your company have an established procedure for issuing timely litigation holds?  Recent court decisions make it clear that employers have a duty to preserve electronically stored information and paper documents they know or should know would be relevant to a current or threatened legal action.  The consequences for failing to do so can be severe.  Events which trigger an employer’s duty to preserve information/documents include, but are not limited to, the following:

  • Receiving notice that the employer is a party to a legal or an administrative proceeding, such as a charge of discrimination;
  • Receiving a letter threatening a claim on behalf of an applicant or current or former employee;
  • A verbal demand from an applicant or current or former employee relating to a legal claim;
  • Other “red flags” exist or a “totality of circumstances” indicate a claim is likely to be made by an  applicant or current or former employee.

A litigation hold notice is best made in writing,  It should instruct recipients to preserve and not destroy (or overwrite) electronically stored information and paper documents that are relevant to current or threatened litigation.

Although the litigation hold notice must be tailored to the facts of each particular situation, at a minimum, it should include the following:

  • Name of the matter or individual involved;
  • Warning of the importance of the hold and the consequences for not complying with it;
  • Direction not to alter or destroy information/documents;
  • Reason for the hold – e.g., legal action;
  • Reason the recipient (see below) is getting the hold notice;
  • Types of information included in the hold and the applicable time period.  (Information subject to the hold could include personnel files and other employment related documents, e-mail and other forms of correspondence and electronically stored information.)
  • Instructions for preserving information/documents;
  • Suspension of any routine document retention/destruction policy;

The hold notice should be issued to all employees reasonably likely to have information relevant to a claim – the “key players” in the matter.  There could also be instances in which outside vendors would also need to be issued a hold notice.

The employer’s IT department should help implement litigation holds, particularly with regard to documents housed or stored in e-mail accounts, or on computers, cell phones PDAs, or on flash drives, as well as with regard to taking control of backup tapes and stopping any automatic overwriting of electronic data.

Finally, employers should enforce litigation holds and, if a violation of the hold is discovered, take prompt action to remedy the violation if possible.  Steps also should be taken to ensure no further violations occur, such as taking disciplinary action up to termination.

Litigation hold notices must be tailored to the facts of each case and should be reviewed by counsel knowledgeable in this area.  If you have a question about litigation hold practices, Poyner Spruill attorneys are experienced in minimizing legal risks through the effective use of litigation holds and are available to assist employers with any of their needs.

© 2011 Poyner Spruill LLP. All rights reserved.

Chief Judge Imposes Privilege Waiver Sanctions Against Defendant for Repeated Discovery Misconduct in DL v. District of Columbia

Recently posted at the National Law Review byMorgan, Lewis & Bockius LLP  an  overview / warning about discovery violations:  

Chief Judge Royce C. Lamberth of the U.S. District Court for the District of Columbia sent a clear message to litigants last week: repeated discovery violations will not be tolerated and may subject the violator to harsh sanctions, including waiver of privilege. In his May 9 ruling in DL v. District of Columbia,[1]Judge Lamberth denied defendant District of Columbia’s (District’s) request for reconsideration of his April 7, 2011 order, which imposed privilege waiver sanctions with regard to all of the District’s as-yet unproduced email and ordered the District to produce all such email within one week after the close of trial.

The plaintiffs in this Individuals with Disabilities and Education Act (IDEA) case had been waiting almost six years for trial. Beginning on the first day of trial (April 6, 2011), however, the central issue in the case quickly became the District’s failure to timely meet its discovery obligations when the plaintiffs’ counsel informed the court that “document production from the District was still flooding into his office,” including the production of “thousands of e-mails just days before trial.” Indeed, the District intended to “continue to produce thousands of e-mails on a ‘rolling’ basis even after the trial concluded.” As the unproduced e-mails were from more than two years prior, no basis existed for such a lengthy delay in production, especially in a case in which discovery had been closed for more than two years. The court found the District’s explanation for its untimely rolling productions of email (which the District described as the result of a “supplemental search” that had been “ongoing for months”) completely unacceptable. The court especially noted the District’s failure to bring its delayed production to the court’s attention at either the pretrial conference or at any number of pretrial proceedings.

Among the District’s numerous discovery violations, the court highlighted the following:

  • Failure to timely produce relevant documents
  • Violation of multiple discovery orders
  • Failure to timely provide a privilege log
  • Failure to inform the court of any delays in production in order to request appropriate extensions

The court may have been more lenient had the District not requested and been granted an extension of its discovery deadlines from June 27, 2008 until October 14, 2008. The District, despite being recently sanctioned for discovery violations, failed to comply with several discovery milestones ordered by the court, including the submission of a privilege log. In addition, the District’s certification that it had completed its production was not only late, but also inaccurate since the District clearly had not yet completed its production. Furthermore, on September 22, 2010, the district court ordered both parties to supplement their discovery responses and document productions up until the date of the trial, an order that the was also violated by the District.

In its ruling, the court emphasized the District’s failure to (a) alert the court to the delayed production of email and (b) seek an appropriate extension.

“If at any point the District realized that it was behind, or for any other reason could not comply with this Court’s Orders, it should have informed the Court of the problem. . . . It could have said something at any of the multiple status conferences held in this case or at the pretrial conference. Instead, the District failed to produce documents for over two years, violated multiple Court Orders in the process, and instead of informing the Court of the situation at any point along the way, it simply sprung the news on the first day of trial.”

Further, the court stated that, absent entering a default judgment in the case, the order granting privilege waiver sanctions and compelling production of all remaining e-mail within one week of trial was the only realistic alternative.Otherwise, the parties would face extremely burdensome delays and increased litigation time and costs, which would also affect the court’s already overloaded trial docket. The court stated state that the District “should not be surprised that its misconduct has caught up with it.”

This case underscores the importance to companies involved in litigation of diligently complying with all discovery deadlines and promptly bringing to the court’s attention any delays in compliance. Failure to do so may result in severe sanctions, including privilege waivers.

[1]. Case No. 1:05-cv-01437-RCL (D.D.C. May 9, 2011). Plaintiffs in this class action suit sued their local school district, the District of Columbia, over the District’s failure to provide them with a free appropriate public education, as required by law.

Copyright © 2011 by Morgan, Lewis & Bockius LLP. All Rights Reserved.

IQPC’s 11th eDiscovery Summit – April 27-29, 2011 San Francisco, CA – Save Big if Registered Before April 1st!

The National Law Review is a proud media partner for IQPC’s 11th eDiscovery Summit – April 27-29, 2011 San Francisco, CA

IQPC’s 11th eDiscovery Summit features hands on sessions and practical instruction to bring back to your eDiscovery teams. You will engage with IT and legal focus groups to candidly discuss anticipated push back issues, observe how different roles within your company approach imminent litigation and put bridging the gap strategies into practice.

It is no secret that you want to reduce the cost of eDiscovery, yet how do you know if you are paying a reasonable price for ESI processing and review? Do not miss this unique opportunity to learn about outside the box pricing structures and benchmark with your peers to gain a realistic picture of fair pricing for electronic information management.

Why attend the 11th eDiscovery Summit?

  • United States District Court Judges share their experiences with companies committing costly electronic discovery mistakes
  • Bridge the gap between IT and legal through a practical exercise with IT and legal focus groups
  • Learn practical steps to create a solid cross-functional eDiscovery team fostering communication and effective workflow between departments
  • Gain valuable metrics to assess the repeatability and defensibility of your eDiscovery procedures
  • Maximize the benefits of social networking and cloud computing without compromising security and increasing risk
  • Earn CLE Credits! Find out more

Registration, Location & Details…..

  • April 27 – 29, 2011 The Hyatt Regency San Francisco, CA

  • Save Big on Registration – if you sign up prior to April 1st
  • For More Information and to Register – Please Click Here:

Superfund Recycling Equity Act (SREA) Fee Shifting: PRP Group Liable for Third-Party Defendants’ Attorneys' Fees

Recent Guest Blogger at the National Law Review   Thomas A. Barnard  of  Taft Stettinius & Hollister LLP   explains a recent federal district court ruling that a PRP group seeking contribution under CERCLA must pay the attorneys’ fees incurred by a mining company targeted by the PRP group for contribution:  

The Superfund Recycling Equity Act (“SREA”) fee shifting provision puts PRP groups seeking contribution under CERCLA from generators of “recyclable material” at risk of paying the generators’ attorneys’ fees if the generator’s defense succeeds.  A federal district court recently ruled that a PRP group seeking contribution under CERCLA must pay the attorneys’ fees incurred by a mining company targeted by the PRP group for contribution.  Evansville Greenway and Remediation Trust v. Southern Indiana Gas and Electric Co., Inc.., No. 07-00066 (S.D. Ind. Feb. 25, 2011), Dkt. 917.

Previously, district courts have refrained from awarding defense fees under SREA on the grounds that it would result in “manifest injustice” because the retroactive application of SREA (enacted in 1999) would impose a fee-shifting component that did not exist when the contribution actions were initiated.  See, e.g., RSR Corp. v. Avanti Development Inc., 2000 WL 1449859 at *4 (S.D. Ind. 2000) (“The plaintiffs made their decisions about whom to sue at a time when CERCLA did not allow a prevailing party in a contribution action to obtain costs and fees from its burden.  To burden that decision now with the imposition of the attorney and expert fees of any defendant that prevails under the SREA seems inconsistent with the ‘familiar considerations of fair notice, reasonable reliance, and settled expectations’ mentioned by the Supreme Court.”); see also U.S. v. Mountain Metal Co., 137 F.Supp.2d 1267, 1282 (N.D. Ala 2001).

In Evansville Greenway, the court determined that the third-party defendant, Solar Sources, Inc., qualified for an exemption to CERCLA liability established by SREA.  Specifically, the court found that Solar Sources had “arranged for recycling” because it sold scrap metal that met a “commercial specification grade for which a market existed,” and that a “substantial portion of the scrap was made available for use in the manufacture of a new product.  This satisfied the SREA requirements for scrap metal generators set forth in 42 U.S.C. 9627(d). 

Having determined that Solar Sources prevailed in its SREA defense, the court then awarded attorney and expert fees under the statute’s fee-shifting provision, 42 U.S.C. 9627(j).  Without referring to the prior case law interpreting this section, the court matter-of-factly awarded the fees “as we are required to do under the statute.”  The third-party complaint against Solar Sources was filed by the PRP group in 1999, after SREA was enacted, but the court did not discuss this timing in awarding defense fees.

Accordingly, PRP groups must carefully consider the risk of liability for defense fees and expenses prior to filing contribution actions against generators of material that potentially falls within the scope of SREA’s exemption.

Copyright © 2011 Taft Stettinius & Hollister LLP. All rights reserved.

The Economy has Changed – InHouse Law Departments are Changing – Law Firms You Need to Change Too. Exhibit A: Howrey LLP

Lead, Follow or Get Out of the Way.  attributed to Thomas Paine 

Lead Me, Follow Me, or Get Out of My Way.  General George S. Patton 

Much has been written lately about the demise of Howrey, LLP.  Reasons cited for the downfall include: alternative fee arrangements, discovery outsourcing and the decline in overall litigation.  As a former in-house counsel, I had a few cases with them and always found them to be very effective litigators. Howrey’s emphasis on litigation, according to some is the main reason of their demise.  From the Wall Street Journal’s Law Blog March 9th:

Howrey, which once employed as many as 750 attorneys and uses the slogan “In Court Every Day,” had built what many corporations described as “go-to” litigation and intellectual property practices in the U.S. and Europe.

A former general counsel highlighted the ‘over effectiveness’ of Howrey’s – In Court Every Day  motto, but  he may be missing a bigger business trend:

But here’s the problem: clients may want to hire lawyers with deep litigation experience. I am very confident, however of the following:

Clients do not want to be in court every day.

Sometime in the last five years or so, most general counsel came to a realization: all litigation is bad. Some is worse than others, and some necessary for a while, to be sure. A bottom line for litigation is emerging: you don’t want to be in court and if you are you want to get out fast.  .  Howrey 3: When is a Law Firm Brand Too Good?  – from John Wallbillich of Wired CG. 

Many general counsel have believed for some time that litigation is often a resource drain.  The change is that many C-Level Managers now understand the time, cost, and often slim chance of collecting on a judgment even if you win often involved with  litigation.  Blame the economy for this increased scrutiny by businesses on legal expenses vs. financial outcomes from litigation.   

Competitive businesses have to look closely at all major expenditures, including…Alert the Media legal costs.  Inside counsel have to explain their costs, perform cost benefit analyses, and provide detailed budgets to executives. Guess what happened along the way,  business demanded that the law firms they retain be run like …. businesses!

  • Businesses that had project mangers on staff for years began to wonder why their law firms didn’t.  
     
  • Businesses that had to devise thier own internal litigation budgets questioned why their litigators seemed reluctant to do so.  
     
  • Businesses that had to estimate costs and develop estimates for their clients began to wonder why law firms weren’t willing to shoulder some of the estimation risk too.

There will always be situations where companies need good litigators, maybe just not as many as they did before.  Which brings me back to the other reasons frequently mentioned for Howrey’s demise:  alternative fees and  the advent of third-party discovery vendors.  

Alternative Fees & the Advent of Third Party Discovery Vendors

Alternative fees and discovery vendors are just low hanging fruit.  In the aptly titled blog post:  A BS Detector’s Review of the Latest Howrey News, Patrick McKenna interprets:

Ooooooooo, here it comes……wait for it…….alternative fees and low cost service providers unexpectedly arose and killed a healthy, well run law firm!

So, although there may be less of a demand for litigators, a well run firm could adjust.  And although clients may want alternative fee arrangements (AFA) the tipping point for Howrey was the response to client pressure for a small percentage of cases to be converted to AFA?  Astutely noted by Patrick Lamb in his follow-up blog post: The BS of the “Howrey Story” :  

AHA. SO, the firm survived on overcharging clients for mundane administrative discovery service. And did not have the acumen to adjust its fundamental practice accordingly. That was certainly not anything that was foreseeable or addressable by management.

In the end, Howrey CEO Robert Ruyak, summed it up the best: 

What we found is that partners at major law firms have very little tolerance for change and very little tolerance for fluctuation in profits…. Wall Street Journal’s Law Blog March 9th. 

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