Free Response to Motion - District Court of Colorado - Colorado

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IN THE UNITED STATES DISTRICT COURT FOR THE DISTRICT OF COLORADO Civil Action No. 03-CV-01973-PSF-MJW (Consolidated with 04-CV-02112-PSF-MJW) WALKER GROUP, INC., Plaintiff, v. FIRST LAYER COMMUNICATIONS, INC. and J.E.H. KNUTSON, Defendants.

RESPONSE TO PLAINTIFF' APPLICATION FOR ATTORNEYS' S FEES AND COSTS

Defendant, J.E.H. Knutson, by and through his attorneys, Fairfield and Woods, P.C., hereby responds to the Application for Attorney'Fees and Costs (" s Application" ) filed by Plaintiff, Walker Group, Inc., (" Walker" and states: ) I. INTRODUCTION Walker asserted three claims against Mr. Knutson: breach of guaranty, fraud, and negligent misrepresentation. At the close of Walker'case, the Court granted Mr. s Knutson'Rule 50 motion and dismissed Walker'claims for fraud and negligent s s misrepresentation. The jury found in favor of Walker on the breach of guaranty claim, but found that First Layer Communications, Inc. (" First Layer" had transferred ) $173,109.83 of value to Walker. The Court has ruled that this amount must be credited to Mr. Knutson to a certain extent. Walker now claims $463,076.68 in attorneys' fees and $86,063.48 in costs, which it argues Mr. Knutson is obligated to pay pursuant to the

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guaranty he signed on October 10, 2000, a copy of which is attached for the Court' s immediate reference as Exhibit A, (" Guaranty" ). II. SUMMARY OF ARGUMENT Contrary to Walker'argument, the Guaranty does not provide for recovery of s attorneys' or costs Walker incurs enforcing the Guaranty; it only provides for fees recovery of attorneys' incurred in enforcing the October 10, 2000 note between fees Walker and First Layer (" Note" These amounts are distinct and Mr. Knutson is not ). liable for the attorneys' or costs relating to the Guaranty. In addition, the law is clear fees that costs and attorney'fees must be reasonable to be recoverable. Many of the s attorneys' and costs Walker claims are not reasonable. fees III. ARGUMENT A. The Guaranty does not provide for an award of attorneys' or fees costs against Mr. Knutson for enforcing the Guaranty.

The Guaranty states, in pertinent part, " Guarantor will pay all reasonable costs and expenses, including attorneys' fees, paid or incurred by Beneficiary, its successors, or assigns, in connection with the enforcement of the Obligations."Guaranty, ¶ 3 (emphasis added). The " Obligations" defined as, " sums now or hereinafter due to are all Beneficiary pursuant to the Note."Guaranty, Recitals (emphasis added). Since Mr. Knutson is not a party to the Note, the Obligations do not include any amounts which are owed or might be owed by Mr. Knutson pursuant to the Guaranty. There is no language in the Guaranty stating that Mr. Knutson will pay the costs and/or attorneys' incurred fees in enforcing the Guaranty. As recognized by Walker, in the absence of a statue or agreement between the parties providing for the recovery of attorneys' fees, the parties must pay their own

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attorneys' fees. See Application, p. 3 (citing Roberts v. Adams, 47 P.3d 690, 697 [Colo.Ct.App. 2001]). Here, the language of the Guaranty clearly does not provide Walker with the right to recover from Mr. Knutson the costs or attorneys' it incurred fees enforcing the Guaranty against him. Of course, since Walker drafted the Guaranty, any ambiguities must be construed in favor of Mr. Knutson. See Elliott v. Joyce, 889 P.2d 43, 48 (Colo. 1994)(holding, " all ambiguities should be strictly construed against the party drafting the contract" see also ); First Interstate Bank of Denver, N.A. v. Colcott Partners IV, 833 P.2d 876, 878 (Colo.App. 1992)(holding, " guarantee agreements are to be strictly construed in favor of the guarantor" ). To the extent Walker claims it is entitled to recover from Mr. Knutson the attorneys' it incurred enforcing the Note against First Layer, those amounts must be fees separated from the amounts incurred enforcing the Guaranty against Mr. Knutson. " When there are multiple parties and an award of attorney fees is entered against only one of the parties, the trial court, to the extent practical, should apportion the fees so that only those fees incurred with regard to that party are awarded."Newport Pacific Capital Co., Inc. v. Waste, 878 P.2d 136, 140 (Colo.Ct.App. 1994). Further, " Counsel seeking attorney's fees must keep sufficient time records for a court to determine which hours are reasonably expended on a case."Thornton v. Kaplan, 958 F.Supp. 507, 509 (D.Colo. 1996). The Court should note that Walker obtained a default against First Layer in North Carolina federal court on January 16, 2004. See Entry of Default Against Defendant First Layer Communications, Inc., dated January 16, 2004, in The United States District Court

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for the Middle District of North Carolina Winston-Salem. This was well before Walker incurred most of the costs and attorneys' in now claims. fees The Court should require Walker to identify the fees incurred pursuing the claims against First Layer and, and after analyzing those fees for reasonableness according to the standards discussed herein and giving Mr. Knutson and opportunity to be heard, decline to award anything else. B. The attorneys' fees and costs claimed by Walker are not recoverable because they are not reasonable.

Aside from the terms of the Guaranty discussed above, the attorneys' and fees costs Walker claims are not reasonable and, therefore, are not recoverable. 1. Legal standards for award of attorneys' fees

" party requesting an award of attorney fees bears the burden of proving by a The preponderance of the evidence its entitlement to such an award." American Water Development, Inc. v. City of Alamosa, 874 P.2d 352, 383 (Colo. 1994). " award of An attorney fees must be reasonable."Double Oak Const., L.L.C. v. Cornerstone Development Intern., L.L.C., 97 P.3d 140, 152 (Colo.Ct.App. 2003). " awarding attorney'fees, the trial court may consider, among other factors, In s the amount in controversy, the length of time required to represent the client effectively, the complexity of the case, the value of the legal services to the client, and the usage in the legal community concerning fees in similar cases. However, no one of these factors is conclusive."Westec Const. Management Co. v. Postle Enterprises I, Inc., 68 P.3d 529, 536 (Colo.Ct.App. 2002). The Court should also consider the degree of success achieved by the party claiming the attorneys' fees. Tallitsch v. Child Support Services, Inc., 926 P.2d 143, 147-48 (Colo.Ct.App. 1996).

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Colorado courts have held that an analysis of the reasonableness of attorneys' fees " should be based on consideration of the lodestar amount--the amount representing the number of hours reasonably expended multiplied by a reasonable hourly rate."Public Service Co. of Colorado v. Continental Cas. Co., 26 F.3d 1508, 1520 (10th Cir. 1994)(citing Dahl v. Young, 862 P.2d 969, 973 [Colo.Ct.App.1993]); see also Double Oak, supra, at 152; cf. Cityside Archives, Ltd. v. New York City Health and Hospital Corp., 37 F.Supp.2d 652, 657-658, n.5 (D.N.J. 1999)(holding, " [t]hese standards [the lodestar] also apply in non-civil rights cases involving attorney'fees authorized by both s state and federal statutes, as well as, contracts executed pursuant to state law" 1 ). 2. Walker'fees are unreasonable under the loadstar approach. s

As discussed above, an award of reasonable attorneys' should be based on fees the lodestar calculation, " amount representing the number of hours reasonably the expended multiplied by a reasonable hourly rate."Id. Mr. Knutson does not contest the reasonableness of the hourly rates charged by Walker'lawyers. However, the number s of hours billed by Walker'lawyers is unreasonable. s Walker claims a total of $463,076.68 in attorneys' fees. See Application, p. 2. Kilpatrick Stockton has " expended not less that 1400 hours through October 31, 2005." Affidavit of Richard S. Gottlieb, attached to Application as Exhibit A, (" Gottlieb Affidavit" ¶ 7. The Maximon Law Firm " ) expended not less that 575 hours through October 31, 2005."Affidavit of Joshua Maximon, attached to Application as Exhibit B, (" Maximon Affidavit" ¶ 4. By contrast, Mr. Knutson incurred $280,763.32 in attorneys' )

1

Although Walker does not discuss the lodestar approach, it relies heavily on Public Service Co, which holds that the lodestar should be considered. Id. at 1520.

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fees. See Affidavit of Michael R. McCurdy, attached hereto as Exhibit B (" McCurdy Affidavit" Thus, Walker'fees are approximately 40% higher than Mr. Knutson' ). s s. Walker discusses its attorneys' by time period. See Application, pp. 12-17. fees It is helpful to compare Walker'fees to Mr. Knutson'during these time periods. s s Time period August 2003-January 2004 February-June 2004 July-November 2004 December 2004-April 2005 May-August 2005 September-November 2005 Walker'fees s $63,000 $90,000 $45,000 $125,000 $24,000 $122,000 Knutson'fees s $22,0002 $49,000 $18,000 $51,000 $33,000 $103,0003

With some exceptions, counsel for both parties performed the same tasks and functions for their respective clients. Both parties briefed preliminary and jurisdictional issues. But see point III.B.5.b. infra. Both parties conducted expert and non-expert discovery. Both parties filed and responded to motions to compel (both had varying degrees of success). Walker chose to file a motion for partial summary judgment, to which Mr. Knutson responded. Both parties field motions in limine. Both parties prepared for and participated in the trial. However, Walker'fees were significantly s higher during all but one of the above time periods and were approximately 40% higher overall.

2

The figures for Walker'fees were obtained from Walker'Application, pp. 12-17. See McCurdy s s Affidavit for Mr. Knutson'figures. The figures are approximate. s 3 Although Walker discusses the period September-October 2005 in its Application, since both parties clearly billed fees incurred in the trial, which was held at the end of October, in November, we have included time billed in November here.

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Neither party has questioned the qualifications or abilities of the other side' s counsel. While it is true that Walker prevailed on its breach of guaranty claim, as discussed below, it failed on its other two claims. Prevailing on one claim does not explain or justify such a significant difference in the amount of hours spent on this case. While it is evident simply from the amounts discussed above that the fees and costs claimed by Walker are excessive, the specific issues discussed below clearly show that many of Walker'claimed fees and costs are unreasonable and not recoverable.4 s 3. It was not reasonable for Walker to use two law firms.

Walker was represented in this case by two law firms: Kilpatrick Stockton, primarily by Richard Gottleib, and The Maximon Law Firm, primarily by Joshua Maximon. The Application details Mr. Gottleib'and Mr. Maximon'experience and argues s s that they are both highly competent lawyers. There is no need for two so highly experienced lawyers here. Either one of these two lawyers had the expertise to handle this case on his own. Walker did not retain Mr. Maximon simply as local counsel. As Walker states, Mr. Maximon " involved in the drafting of every pleading..."Application, p. 6. He was participated in the trial. His bills reveal that he was significantly involved in the substantive aspects of the case. See Maximon Affidavit and bills.

4

Expert testimony is not required here because the Court is its own expert with respect to the reasonableness of attorneys' fees. See Morehead v. Lewis, 432 F.Supp. 674, 680 (D.Ill. 1977)(holding, ` " [t]he court . . . is itself an expert on the question and may consider its own knowledge and experience concerning reasonable and proper fees and may form an independent judgment either with or without the aid of testimony of witnesses as to value." Campbell v. Green, 112 F.2d 143, 144 (5th Cir. 1940)' Weeks ); v. Southern Bell Tel. & Tel. Co., 359 F.Supp. 1219, 1221 (D.Ga. 1971).

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Having two such experienced lawyers, from two law firms, clearly resulted in duplication of efforts and higher fees. As discussed above, Walker claims a total of $463,076.68, while Mr. Knutson incurred $280,763.32. Mr. Maximon billed Walker approximately $94,032.54. Walker was entitled to retain two experienced attorneys. However, it is only entitled to recover reasonable attorneys' fees. Having two such experienced attorneys on this case is a luxury; it is not reasonable and not recoverable. 4. Walker'expert costs are not reasonable. s

Walker claims $69,276 for it expert, Ronald D. Haas, Jr. See Application, p. 17. Mr. Haas was retained as a rebuttal expert to rebut the opinion offered by Mr. Knutson' s expert, Lari Masten. Mr. Haas' hourly rate is unreasonable. According to his report (last attachment), Mr. Haas charged Walker $425 per hour.5 Lari Masten billed at $200 per hour. See Invoices of Ian D. Gardenswartz and Associates, P.C., attached hereto as Exhibit C. This is so in spite of the fact that Ms. Masten'experience if far greater that Mr. Haas' s in a number of respects, which were discussed at length in Mr. Knutson'Motion in Limine s to Exclude Expert Evidence, dated May 9, 2005, and are incorporated herein by this reference. Mr. Haas' is also significantly higher than all of the attorneys that worked rate on the case. Mr. Gottleib'rate at the end of the case was $310 per hour; Michael R. s McCurdy, of Fairfield and Woods, P.C., currently charges $310 per hour. See McCurdy

5

A copy of Mr. Haas' Report is attached to Mr. Knutson'Motion in Limine to Exclude Expert Evidence s as Exhibit A; in the interests of brevity, Mr. Knutson does not attach another copy here, but would be happy to provide one upon request. Similarly, a copy of Ms. Masten'report is attached to Mr. Knutson' s s Response to Walker'Motion to Exclude Expert Evidence as Exhibit A. s

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Affidavit, ¶ 5. Thus, Mr. Haas' is over 25% higher than both lead attorneys and rate more than twice as much as Mr. Knutson'expert. s The hours spent on Mr. Haas' work are also excessive and unreasonable. Mr. Haas produced a 18-page report (including two attachments). Although his report suggests that other employees of his firm, some with higher rates than his, some lower, worked on the report, judging from Mr. Haas' rate, he would have spent approximately 163 hours on this case. In contrast to Mr. Haas' fees, Ms. Masten charged Mr. Knutson a total of $22,208.50. See Exhibit C. She produced an 83-page report (including appendixes). See note 5 supra.6 Of course, Mr. Knutson acknowledges that the Court excluded the opinion of his expert. This, however, does not explain or justify the exorbitant rate charged by Mr. Haas or the excessive hours expended producing one short rebuttal report. The amount Walker claims for its rebuttal expert is simply not reasonable. 5. Walker is not entitled to the attorneys' it incurred in connection with fees unsuccessful claims.

" the plaintiffs do not prevail on all of their claims, the court must take this If factor into account. If an unsuccessful claim was totally unrelated to the ones upon which plaintiffs prevailed, the court must treat the matters separately and insure that the fee awarded compensates only for services rendered on the successful claims."Oten v. Colorado Board of Social Services, 738 P.2d 37, 42 (Colo.App.1987); see also Villescas v. Richardson, 145 F.Supp.2d 1228, 1232 (D.Colo. 2001), reversed on other grounds, 311 F.3d 1253 (10th Cir. 2002)(holding, " lodestar calculation may be reduced on the The grounds that a prevailing party has achieved only partial success" Walker did not ).
6

Both experts spent time in depositions, preparation, etc.

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prevail on a number of claims and issues and is not entitled to its fees or costs with respect to those claims. a. Fraud and Negligent Misrepresentation

Walker asserted three claims against Mr. Knutson: breach of guaranty, fraud, and negligent misrepresentation. Two of the three (fraud and negligent misrepresentation) failed. Walker alleged that Mr. Knutson had made material misrepresentations concerning his financial worth, which induced it into entering into the Note and the Guaranty. Walker, however, failed to produce evidence sufficient to support these allegations and the Court dismissed them at the close of Walker'case, pursuant to Rule s 50. These claims are distinct from the breach of guaranty and, consistent with the authority discussed above, Walker cannot recover its fees for them. Hughes v. Regents of University of Colorado, 967 F.Supp. 431, 442 (D.Colo. 1996), is instructive. There, the defendant prevailed on two employment discrimination claims, one based on Title VII of the Civil Rights Act of 1964 (" Title VII" and the other ) on the Age Discrimination in Employment Act (" ADEA" The Court concluded that the ). defendant was entitled to recover its attorneys' on the Title VII claim, but not the fees ADEA claim. The court observed, " When a party does not prevail on all matters, the district court must determine whether the fee award should be reduced to reflect less than total success."Id. Finding that the Title VII and ADEA claims were distinct, the Court reduced the defendant'attorneys' award by fifty per cent. Id. s fee Here, similarly, the fraud and misrepresentation claims are quite different from the breach of guaranty. Fraud and negligent misrepresentation have different elements. Although Walker failed to produce supportive evidence at trial, its stated position was

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that Mr. Knutson had misrepresented his financial worth in order to persuade Walker to loan First Layer funds pursuant to the Note. See Answer of Defendant Walker Group, Inc. to Plaintiff'Complaint and Defendant Walker Group, Inc.'Counterclaim Against s s Plaintiff, pp. 8-11. This evidence has nothing to do with Mr. Knutson'liability under s the Guaranty. Because the breach of guaranty claim is distinct from the fraud and misrepresentation claims and Walker did not prevail on the latter, it is not entitled to its fees or costs with respect to those claims. b. Procedural and Jurisdictional Arguments

Walker also pursued a number of procedural and jurisdictional tactics early in the case, which were unsuccessful. These included a Motion to Dismiss Without Prejudice, a Motion to Stay or, in the Alternative, to Transfer Venue, and its Complaint in North Carolina. The Motion to Dismiss Without Prejudice was based on a minor error in Walker' s name in Mr. Knutson'original Complaint. Rather than simply informing Mr. Knutson' s s counsel of this mistake so that he could amend, as case law from this Court instructs, see Barrett v. Qual-Med, Inc., 153 F.R.D. 653, 655 (D.Colo. 1994), Walker moved to dismiss, without conferring with counsel. This Court denied Walker'motion. s Walker drafted and filed its Complaint in North Carolina after Mr. Knutson had filed his Complaint in this action. The North Carolina federal court transferred the North Carolina Complaint to this Court, on Mr. Knutson'motion, based on the first filed rule. s For the same reasons, this Court denied Walker'Motion to Stay or, in the Alternative, to s Transfer Venue. These proceedings, which involved extensive briefing in two courts, were completely unnecessary. Walker should have recognized that the first filed rule

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governed and submitted to this Court'jurisdiction, instead of drafting its own complaint s and challenging jurisdiction. Walker instigated each of these procedural arguments and lost. Further, however, it caused a second round of briefing by objecting to the Magistrate'rulings on each of s these issues. According to Walker'Application, it incurred approximately $63,000 on s these procedural arguments. See Application, p. 12. These arguments were ill-advised, avoidable, and unreasonable. " the court determines that some reduction in attorney fees is warranted, it may If either identify the hours expended on the unsuccessful claim or, in the alternative, merely reduce the total fee by an appropriate amount to reflect the lack of success."Porter v. Castle Rock Ford Lincoln Mercury, Inc., 895 P.2d 1146, 1150 (Colo.Ct.App. 1995); see also Thornton, supra, at 5011 (" Although it is difficult to determine how much an appropriate reduction should be, the Court finds that the compensable hours should be reduced 20%" As observed above, " ). Counsel seeking attorney's fees must keep sufficient time records for a court to determine which hours are reasonably expended on a case."Thornton, supra, at 509. The Court can and should exercise its discretion and deny Walker'request for s fees and costs as to Walker'fraud and negligent misrepresentation claims, as well as the s procedural and jurisdictional arguments, which it lost. IV. CONCLUSION Walker cannot recover the attorneys' and costs it seeks pursuant to the fees Guaranty because the Guaranty only provides for recovery of fees and costs incurred with respect to the Note, not the Guaranty. Further, many of the fees Walker seeks are

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unreasonable. The Court should order Walker to submit additional information on the fees and costs incurred on the claims against First Layer, as well as those incurred on its failed fraud, negligent misrepresentation, and procedural arguments. At the very least, a substantial reduction in any award for attorneys' and costs is warranted. fees WHEREFORE, Mr. Knutson respectfully requests the Court to deny Walker' s Application to the extent discussed herein and to order such other and further relief as the Court deems just and proper. Respectfully submitted the 29th day of December, 2005. FAIRFIELD AND WOODS, P.C.

s/ Colin A. Walker Michael R. McCurdy Fairfield and Woods, P.C. 1700 Lincoln Street, Suite 2400 Denver, CO 80203 Phone: (303) 830-2400 Fax: (303) 830-1033 Email: [email protected] ATTORNEYS FOR DEFENDANT

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CERTIFICATE OF SERVICE I hereby certify that on this 29th day of December, 2005 I electronically filed the foregoing with the Court using the CM/ECF system, which will send notification of such filing to the following email-addresses: [email protected] [email protected] s/ Colin A. Walker Michael R. McCurdy Fairfield and Woods, P.C. 1700 Lincoln Street, Suite 2400 Denver, CO 80203 Phone: (303) 830-2400 Fax: (303) 830-1033 Email: [email protected] ATTORNEYS FOR DEFENDANT

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