Free Reply to Response to Motion - District Court of Colorado - Colorado

Case 1:03-cv-01973-PSF-MJW

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IN THE UNITED STATES DISTRICT COURT FOR THE DISTRICT OF COLORADO

Civil Action No. 03-cv-1973-PSF-MJW (Consolidated with 04-cv-02112-PSF-MJW) THE WALKER GROUP, INC. Plaintiff, v. FIRST LAYER COMMUNICATIONS, INC. and J.E.H. KNUTSON Defendants.

PLAINTIFF'S REPLY IN SUPPORT OF APPLICATION FOR ATTORNEYS' FEES AND COSTS

The Plaintiff, The Walker Group, Inc. ("Walker Group"), by and through counsel, respectfully submits this Reply in support of its Application for Attorneys' Fees and Costs. A. Because Walker Group Achieved the Principal Goal of Its Lawsuit, Its Lack of Success on Other Interrelated Claims May Not Be Used as a Basis to Reduce an Award of Attorneys' Fees. "When a plaintiff achieves the principal goal of his lawsuit, lack of success on some of his interrelated claims may not be used as a basis for reducing the plaintiff's fee award." Villescas v. Richardson, 145 F. Supp. 2d 1228, 1233 (D. Colo. 2001), rev'd on other grounds, 311 F.3d 1253 (10th Cir. 2002). Thus, Defendant's assertion that Walker Group is

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not entitled to the portion of attorneys' fees it incurred in connection with its fraud and negligent misrepresentation claims is incorrect. In fact, the cases Defendant cited in support this proposition actually held that the award of attorneys' fees should not be reduced as a result of unsuccessful claims. (Response at 9); Villescas, 145 F. Supp. 2d at 1233; Oten v. Colo. Bd. of Soc. Servs., 738 P.2d 37, 42 (Colo. Ct. App. 1987). Villescas v. Richardson instructs courts to "focus on the significance of the overall relief that the prevailing party has won: The result is what matters." 145 F. Supp. 2d at 1233 (internal quotations and citation omitted). Particularly when the facts supporting both unsuccessful and successful claims are "part of one bundle of proof," the plaintiff's attorney is entitled to full compensation. Id. Likewise, in Oten, the court reasoned that if "the unsuccessful claim involves a common core of facts or related legal theories, the court should focus on the significance of the overall relief obtained by the plaintiff in relation to the hours reasonably expended on the [entire] litigation." quotation omitted, modification in original). It is undeniable that the main goal of Walker Group's action against Mr. Knutson was to recover the amounts owed under Mr. Knutson's personal guaranty. It is undeniable also that Walker Group succeeded on its breach of guaranty claim and obtained a judgment of $671,336.56 plus pre- and post-judgment interest against Mr. Knutson. Furthermore, the core facts of the case ­ specifically the circumstances surrounding the negotiation and execution of the guaranty and its amendments ­ were common not only to Walker Group's breach of guaranty, negligent misrepresentation and fraud claims, but also to Mr. Knutson's 738 P.2d at 42 (internal

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affirmative claims for fraud and negligent misrepresentation as well as his defenses of fraud and estoppel. See Husband v. Colo. Mountain Cellars, Inc., 867 P.2d 57, 62 (Colo. Ct. App. 1993) (holding that if "fees are incurred in defending against counterclaims that are grounded upon the same transaction out of which the principal debt arose and are asserted to defeat that debt, in whole or in part, it is not improper to consider these fees as part of the costs of collection of that debt"). Because Walker Group succeeded on its most significant claim, and because the facts supporting both its successful and unsuccessful claims were part of one bundle of proof, the fact that Walker Group was not successful on its fraud and negligent misrepresentation claims should not be used as a basis for reducing the fee award, and Walker Group is entitled to payment in full of its attorneys' fees and costs. B. Defendant's Reading of the Guaranty Is Overly Constrained. Defendant attempts to avoid his contractual liability for attorneys' fees and costs under the Guaranty by urging an overly-constrained reading of the Guaranty. Pursuant to the Guaranty, Mr. Knutson is liable for "all reasonable costs and expenses, including attorneys' fees paid or incurred by [Walker Group], its successors, or assigns, in connection with the enforcement of the Obligations." (Guaranty ¶ 3 (Trial Ex. 4)). 1. Defendant's claim that the term "Obligations" does not encompass the amount he owes pursuant to the Guaranty is not supported by the language of the Guaranty or the Note.

As an initial matter, Mr. Knutson's argument truncates the sentence defining the term "Obligations." He claims that the term is defined as "all sums now or hereinafter due to Beneficiary pursuant to the Note." (Response at 2). But a more accurate reading of the

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sentence defines "Obligations" as the "Guaranty of all sums now or hereafter due to Beneficiary pursuant to the Note." (See Guaranty). This reading is consistent with the language in Paragraph 4, which refers to "[t]he Obligations of the Guarantor hereunder. . . ." (Id. at ¶ 4). Furthermore, Mr. Knutson's attempt to limit the attorneys' fees provision of the Guaranty to those costs and fees incurred in connection with enforcement of the Note against First Layer ­ as opposed to the enforcement of the Guaranty against Defendant ­ is contradicted by the terms of the Note itself, which contains its own attorneys' fees provision. (Note ¶ 6 (Trial Ex. 2)). Mr. Knutson's position would have the Court ignore the separate inclusion of the attorneys fee provision in the Guaranty and render the attorneys' fee provision meaningless. 2. Defendant's Proffered Interpretation Still Requires Payment of Walker Group's Fees and Costs.

In the event the Court concludes that the term "Obligations" refers to the amount due from First Layer under the Note ­ a conclusion which Walker Group believes is incorrect ­ Mr. Knutson still is liable for the costs and attorneys' fees incurred in connection with Walker Group's enforcement of the Guaranty. Contrary to Defendant's claim that the

"Obligations" do not include any amounts owed by Mr. Knutson under the Guaranty, Paragraph 1 of the Guaranty expressly states that Mr. Knutson "guarantees to Beneficiary the full and prompt payment or performance of the Obligations." (Guaranty ¶ 1). Simply put, the Obligations are the amounts owed by Mr. Knutson under the Guaranty, and Walker Group is entitled to recover the attorneys' fees and costs it incurred in connection with its enforcement of Mr. Knutson's promise to fully and promptly pay such amounts.

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Finally, Mr. Knutson appears to acknowledge that under his proffered reading of the Guaranty's attorneys' fee provision, he would be responsible for the costs and attorneys' fees incurred in enforcing the Note against First Layer. (Response at 3). He then notes that Walker Group obtained an entry of default against First Layer in January 2004 and argues that this should be the cut-off for any costs or fees incurred with respect to Walker Group's claims against First Layer. (Id. at 3-4). But Walker Group did not obtain a judgment against First Layer until November 14, 2005, following the jury's determination of the value of the assets Walker Group received from First Layer. (See Judgment (Nov. 14, 2005)).

Furthermore, Mr. Knutson adopted and raised as his own First Layer's defense of satisfaction of the debt in defending the breach of guaranty claim, therefore, the costs and attorneys' fees incurred in proving the amount of the debt and the value of the assets transferred from First Layer to Walker Group apply to Walker Group's claims against both First Layer and Mr. Knutson. Because the costs and attorneys' fees incurred in enforcing the Note against First Layer and the Guaranty against Mr. Knutson are one in the same, even under Defendant's suggested reading of the attorneys' fee provision, he is responsible for the full amount of Walker Group's attorneys' fees and costs. C. The Time Spent by Walker Group's Attorneys and Experts and the Costs Incurred Were Reasonable Defendant argues that the costs and attorneys' fees Walker Group incurred in initially defending and ultimately prosecuting this action are unreasonable for a variety of reasons. But the vast majority of these reasons are supported by nothing more than Defendant's sayso. He cited no authority in support of the allegations that Walker Group's fees were

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unreasonable under the lodestar approach1, that it was unreasonable for Walker Group to use both local and corporate counsel, or that Walker Group's expert costs were not reasonable. Although Walker Group agrees that expert testimony is not required because the Court is its own expert with respect to the reasonableness of attorneys' fees (Response at 7 n.4), Mr. Knutson and his counsel have provided no basis for their arguments that the fees and costs Walker Group incurred were not reasonable, other than their own opinion. Defendant's claim that Walker Group's use of local counsel and its North Carolina corporate counsel was unreasonable is not supported by Colorado law. In fact, the Colorado Court of Appeals recently upheld an award of attorneys' fees, which was nearly ten times the amount of the judgment, despite defendant's argument that the award was excessive because plaintiff had two attorneys in a "one-attorney case." Hartman v. Cmty. Responsibility Ctr., Inc., 87 P.3d 254, 258 (Colo. Ct. App. 2004).2 In addition, Walker Group attempted to avoid the cost of having to employ local counsel by moving to stay the Colorado action or have the case transferred to North Carolina. (Mot. to Stay or, in the Alternative, to Transfer (Nov. 7, 2003) ("Mot. to Stay")). Mr. Knutson also argues that the fees incurred with respect to this Motion to Stay or, in the Alternative, to Transfer are unreasonable, but his recounting of the procedural posture that led to the motion simply is not accurate.
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Defendant claims that the motion was

Defendant does not claim that the hourly rates charged by Walker Group's attorneys were unreasonable, but does take issue with the number of hours billed. Interestingly, however, the number of hours Mr. Knutson's attorneys billed during this case is not included in Defendant's response brief or Mr. McCurdy's affidavit. (See Response at 5-7; Aff. of Michael R. McCurdy (Dec. 29, 2005) (attached to Def.'s Response as Ex. B)). 2 It also appears that the Tenth Circuit upheld an award of attorneys' fees to the Public Service Company of Colorado, where the PSC had been represented by multiple law firms. See Pub. Serv. Co. of Colo. v. Continental Cas. Co., 26 F.3d 1508 (10th Cir. 1994).

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"completely unnecessary" because Walker Group "should have recognized that the first filed rule governed and submitted to this Court's jurisdiction." (Response at 11-12). A brief review of Walker Group's motion, however, shows that application of the first filed rule was unclear because although Defendant filed his declaratory judgment complaint in August 2003, he did not even attempt service on Walker and Associates until several days after he had been served with the complaint in Walker's North Carolina action. (See Mot. to Stay ¶¶1-4). These facts gave rise to reasonable, legitimate jurisdictional and procedural

arguments and are not grounds to reduce an award of Walker Group's attorneys' fees and costs. Finally, Mr. Knutson takes issue with Walker Group's expert witness fees and costs, but nevertheless appears to acknowledge that this is a situation where you get what you pay for. (Response at 8-9). Mr. Knutson's proposed expert may have charged a lower hourly rate and produced a voluminous report, but her opinion was excluded as irrelevant and unhelpful. (Order on Walker Group's Mot. to Exclude Expert Testimony (Sept. 7, 2005)). As discussed above, Walker Group's main goal was to recover the substantial amount of money Mr. Knutson owed under his personal guaranty. In order to accomplish this purpose, Walker Group retained PricewaterhouseCoopers, a respected and well-known accounting firm, and more specifically Ronald Haas, who had over ten years of experience valuing telecommunications companies. Mr. Haas' evaluation and advice were invaluable to Walker Group's trial preparation and instrumental in Walker Group's success on its motion to exclude Mr. Knutson's expert and motion for partial summary judgment. When compared to

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the amounts of the judgments obtained in this case, $840,757.87 plus interest against First Layer and $671,336.56 plus interest against Mr. Knutson, the expert costs and fees incurred by Walker Group are entirely reasonable. CONCLUSION Walker Group respectfully submits that the costs incurred and fees of its counsel and experts are reasonable in light of the complexities and contentiousness of this case, as well as the expertise and skill of the attorneys for Walker Group. Having litigated this case for more than two years and having obtained both summary judgment and a substantial jury verdict, Walker Group is entitled, under the terms of the Guaranty, to be reimbursed for all of the fees and expenses it incurred in defending against Mr. Knutson's claims and prosecuting its own. Respectfully submitted, this the 12th day of January, 2006.

s/ Richard S. Gottlieb Richard S. Gottlieb Laura A. Greer Kilpatrick Stockton LLP 1001 West Fourth Street Winston-Salem, North Carolina 27101-2400 Telephone: (336) 607-7300 Attorneys for Plaintiff Walker Group, Inc. Joshua Maximon, Esq. The Maximon Law Firm, LLC 12202 Airport Way, Suite 170 Broomfield, Colorado 80021 Telephone: (303) 991-3344

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UNITED STATES DISTRICT COURT FOR THE DISTRICT OF COLORADO CERTIFICATE OF SERVICE (CM/ECF) I hereby certify that on January 12, 2006, I electronically filed the foregoing PLAINTIFF'S REPLY IN SUPPORT OF APPLICATION FOR ATTORNEYS' FEES AND COSTS with the Clerk of Court using the CM/ECF system which will send notification of such filing to the following email addresses: [email protected] [email protected], and I hereby certify that I have mailed or served the document or paper to the following by first class mail addressed as follows: none.

s/ Richard S. Gottlieb Richard S. Gottlieb Attorney for Plaintiff Walker Group, Inc. Kilpatrick Stockton LLP 1001 West Fourth Street Winston-Salem, North Carolina 27101-2400 Telephone: (336) 607-7300 [email protected]
02560-207219 9098824.1

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