Beard Research, Inc., et al. v. Michael J. Kates, et al., No. 1316-VCP,(Del. Ch. Oct. 1, 2009), read opinion here.
Kevin Brady, a highly regarded Delaware litigator, and an e-discovery expert, provided this synopsis.
This Court of Chancery decision is a follow-up to the Court’s opinion dated May 29, 2009, which was summarized on this blog here. In this latest opinion, Vice Chancellor Parsons found Defendants jointly and severally liable for Plaintiffs’ attorneys’ fees and expenses (including expert fees and expenses) associated with Plaintiffs’ Motion for Sanctions for Spoliation of Evidence with respect to the inspection of the disputed laptop’s hard drive. Vice Chancellor Parsons granted Plaintiffs’ application for fees in the amount of $56,546.00 and expenses in the amount of $20,360.80, for a total of $76,906.80.
By way of brief background, Plaintiffs had repeatedly requested the production of Defendant Kates’ laptop since 2005, asserting that it might contain files, emails, and other data relevant to the merits of this case. Defendants failed to produce it which resulted in the Plaintiffs filing three motions to compel production of Kates’ computer. By the third motion, unbeknownst to Plaintiffs or the Court, Kates already had reformatted the hard drive in the requested computer several times, replaced the drive, and then lost or discarded it.
On July 24, 2008 Kates finally complied with the July 24 Order, but not before he ran a disk cleanup program on the new hard drive and deleted files in “flagrant disregard” of the discovery rules and a litigant’s obligation to preserve potentially relevant evidence. Plaintiffs gave Kates’ laptop to their forensic computer consultant for inspection which showed that several files had been deleted on the evening of July 23, 2008 and several deleted files might have been relevant to the pending litigation. Plaintiffs then moved for sanctions for spoliation of evidence.
Scope of the Fee Award
Following the May 29 Opinion, Plaintiffs’ counsel submitted an itemized affidavit seeking attorneys’ fees and expenses associated with the Motion totaling $104,340.80. On June 25, Defendant ASDI objected to Plaintiffs’ claim for fees and requested that the award be reduced to $60,096.55 because certain fee or expense items included in the Affidavit were for work done outside the scope of the awarded fees and expenses. In addition, Defendants argued that the fees requested by Plaintiffs were generally excessive.
The Court disagreed, awarding Plaintiffs their fees and expenses that pertained directly to Plaintiffs’ efforts to gain possession of and inspect Kates’ computer. The Court noted that:
Plaintiffs [were] entitled to such fees and expenses incurred between July and September 2008 because Defendants wasted Plaintiffs’ (and the Court’s) time and resources by forcing litigation of a third motion to compel, even though the original hard drive in Kates’ laptop already had been changed, reformatted, and ultimately lost well before the July 24, 2008 hearing…. [and] those expenditures could have been avoided if Plaintiffs and the Court had known that the evidence of interest was no longer available.
Reasonableness of the Claimed Fees
Defendants also objected on the grounds that the total amount of fees sought were excessive given the nature of the related dispute. In addressing this issue, the Court looked to the eight-factors identified in Rule 1.5(a) of the Delaware Lawyers’ Rules of Professional Conduct as a guide to determining whether an attorney’s fee is reasonable. In particular, the Court focused on the first factor “the time and labor required, the novelty and difficulty of the questions involved, and the skill requisite to perform the legal service properly.”
Plaintiffs claimed a total of $83,980.00 in attorneys’ fees which represented the time of four attorneys. The Court however found that the activity in question should only require the work of two attorneys, so two of the attorneys’ fees were disallowed. The Court also noted that:
[b]ecause the motion for sanctions sought extensive relief directed to the merits of this case as a whole, including dismissal or an adverse inference in favor of Plaintiffs, the time spent by attorneys with that level of experience may have been reasonable. Much of the requested relief was denied, however, and my award of attorneys’ fees and expenses represents a more narrow sanction directed to the prejudice caused by the spoliation of Kates’ hard drive and the procedural missteps related to it.
The Court agreed with the Defendants that the claim for attorneys’ fees should be reduced by thirty percent based on the nature of the dispute for which fees were awarded.
Defendants also sought a reduction of the expenses submitted, but the Court found that the lion’s share of those expenses were for the services of Plaintiffs’ forensic computer consultant, and that the Defendants had failed to present any persuasive reasons for the Court to question the reasonableness of those expenses. As a result, the Court awarded Plaintiffs the full amount of the expenses they requested.