Free Motion in Limine - District Court of Arizona - Arizona

Matthew A. C. Zapf (pro hac vice) A. Colin Wexler (pro hac vice) GOLDBERG KOHN 55 East Monroe Street, Suite 3300 Chicago, IL 60603-5792 Telephone: 312.201.3914 Facsimile: 312.863.7414 [email protected] [email protected] David P. Irmscher (15026-02) John K. Henning (25203-49) BAKER & DANIELS LLP 111 East Wayne Street, Suite 800 Fort Wayne, IN 46802 Telephone: 260-424-8000 Facsimile: 260-460-1700 [email protected] [email protected] H. Michael Clyde (009647) PERKINS COIE BROWN & BAIN P.A. 2901 North Central Avenue, Suite 2000 Phoenix, AZ 85012-2788 Telephone: 602.351.8000 Facsimile: 602.648.7000 [email protected] Attorneys for Defendant Omron Corporation UNITED STATES DISTRICT COURT FOR THE DISTRICT OF ARIZONA Hypercom Corporation, Plaintiff, vs. Omron Corporation, Defendants. ) ) ) ) ) ) ) ) ) CAUSE NO. CV04-0400 PHX PGR DEFENDANT OMRON CORPORATION'S MOTION IN LIMINE NO. 1 TO EXCLUDE ANY EVIDENCE OF DAMAGES

The defendant, Omron Corporation ("Omron"), moves this Court to exclude any evidence relating to damages, including evidence of attorneys' fees, expert witness fees, engineering expenses, and other expenses and costs for two reasons. First, the plaintiff,

Case 2:04-cv-00400-PGR

Document 163

Filed 04/13/2007

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Hypercom Corporation ("Hypercom"), failed to produce any such evidence during discovery, despite its obligations: (1) under Rule 26 of the Federal Rules of Civil Procedure to voluntarily produce evidence supporting its computation of damages; and (2) under Rule 34 to produce documents responsive to Omron's specific request for evidence supporting Hypercom's damages claims. The only such damage-related documents Hypercom has identified in this case were sent in a settlement response almost a year after discovery had closed. To the extent Hypercom intended to produce its damages documents in that manner, this Court should not permit Hypercom to engage in this improper subterfuge. Second, Hypercom has failed to disclose or list any expert who will testify, as required under Arizona law, that Hypercom's described attorneys' fees were reasonable. 1 A jury has no basis for determining reasonable attorneys' fees in general, much less pursuant to specific Arizona factors such as the required amount of skill or time expended, without documentation and supporting expert testimony. Accordingly, the Court should exclude any evidence of damages from Hypercom.

1

Hypercom has also not filed the required affidavit in support of the reasonableness of the fees.

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I. A.

ARGUMENT

Hypercom Failed To Produce Any Evidence Of Damages During Discovery And, Therefore, Should Be Precluded From Offering Any Such Evidence At Trial Under Rule 26(a)(1)(C), the party claiming damages is required to provide

evidentiary support for its damages claims, without any discovery request from the opposing party: "a party must, without awaiting a discovery request, provide to other parties . . . a computation of any category of damages claimed by the disclosing party, making available for inspection and copying as under Rule 34 the documents or other evidentiary material, not privileged or protected from disclosure, on which such computation is based, including materials bearing on the nature and extent of injuries suffered." Fed. R. Civ. Proc. 26(a)(1)(C). Hypercom failed to produce this information as mandated. Instead, Hypercom baldly asserted in its Rule 26(a)(1) Initial Disclosure Statement that "[Hypercom's damages] include Hypercom's attorney's fees, expert witness fees, and other expenses incurred in connection with these lawsuits. These damages are in excess of $600,000. Hypercom has not yet determined the full extent of those damages."2 In connection with this statement, Hypercom identified no documents supporting this assertion. Also, Hypercom failed to supplement this disclosure during discovery to identify any evidentiary support. Moreover, Omron specifically requested during discovery any documents or other evidence supporting Hypercom's claims for damages, and Hypercom failed to produce a single piece of evidence about damages during discovery. On April 28, 2006, Omron
2

In the Joint Case Management Report dated November 14, 2005, Hypercom claimed that it incurred $825,000 in damages in defending the ITC Administrative Action. See Joint Case Management Report Footnote continued on next page . . .

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served Hypercom with requests for production of documents under Rule 34, including the following request: "Any and all documents which support any claim for damages that Hypercom alleges to have suffered." See Omron Corporation's First Request For Production Of Documents, Request No. 32. In its responses, Hypercom made the following statement: Subject to, and without waiving that objection, Hypercom responds that it will produce any non-privileged responsive documents that can be located with a reasonable search, except that Hypercom does not intend to produce documents already in Omron's possession, such as documents containing communications with Omron, or documents filed or served in connection with this or any other proceeding in which Omron is a party. To the extent that this request encompasses such documents that are already in Omron's possession, Omron has access to these documents and a request to produce the documents to Omron again would be unduly burdensome. Hypercom, however, never produced in discovery any documents in response to this request - no documents, no statements of attorneys' fees incurred, and no expert witnesses ­ to support its claims for damages. The only evidence on this issue that Hypercom has sent to Omron is bills that its outside counsel submitted to Hypercom, but Hypercom only sent these documents to Omron last week, nearly a year after discovery closed, in response to a settlement offer. This can hardly constitute a proper document production. And Hypercom has never identified an expert witness regarding the reasonableness of its damages. "Where attorney fees are an element of damages, they are required to be proven as any other item of damages." Zuniga v. United Can Co., 812 F.2d 443, 453 (9th Cir. 1987). However, Hypercom has failed to offer any reasonable proof of damages in this

at 6. However, two months later, on January 17, 2006, Hypercom claimed that its damages for all of the cases "are in excess of $600,000."

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case. The Ninth Circuit provides that "[b]elated discovery compliance with discovery orders does not preclude the imposition of sanctions. Last-minute tender of documents does not cure the prejudice to opponents . . . ." Payne v. Exxon Corp., 121 F.3d 503, 508 (9th Cir. 1997) (quotations omitted). "The issue is not whether [defendants] eventually obtained the information that they needed or whether plaintiffs are now willing to provide it, but whether plaintiffs' repeated failure to provide documents and information in a timely fashion prejudiced the ability of [defendants] to prepare their case for trial." Id. When considering whether to exclude evidence at trial, the burden shifts to the party that failed to timely produce the evidence to prove substantial justification and harmlessness. See Hyde & Drath v. Baker, 24 F.3d 1162, 1171 (9th Cir. 1994). In this case, Hypercom cannot show "substantial justification and harmlessness." Hypercom failed to produce any evidence supporting its damages claims during discovery. With the parties on the verge of trial, the prejudice to Omron is clear - Omron never had an opportunity to evaluate Hypercom's fee statements and conduct discovery. And Hypercom has no excuse for failing to produce in discovery a single piece of evidence that supports its damages claims against Omron, especially since all of the lawsuits that form the basis for Hypercom's damages claims have long been dismissed. For example, according to representations by Hypercom's counsel, the vast majority of Hypercom's claimed damages are related to Verve's prosecution of patent infringement claims in the International Trade Commission ("ITC"). On December 12, 2005, Verve's claims from the last remaining patent infringement lawsuit, which was originally filed in Texas and then transferred to the District of Arizona, were dismissed. Therefore, at a minimum, Hypercom has known the full extent of its damages in this case for more than -5Case 2:04-cv-00400-PGR Document 163 Filed 04/13/2007 Page 5 of 15

18 months, and yet Hypercom waited until the last minute to produce any evidence related to those damages. Moreover, the documents produced by Hypercom on April 6, 2007, demonstrate that Hypercom is lumping in its attorneys' fees for prosecuting its counterclaims for malicious prosecution and abuse of process against Verve in another case, and Omron in this case, and Arizona law is clear that those fees are not recoverable. See Cortaro Water Users' Ass'n v. Steiner, 148 Ariz. 314, 316, 714 P.2d 807, 809 (1986) ("In Arizona we follow the general American rule that attorneys' fees are not recoverable unless they are expressly provided for either by statute or contract.").3 Based on claims made by Hypercom in its lawsuit against Verve, Omron believes that Hypercom may also claim damages because its engineers were distracted by the lawsuits from their normal work duties. Hypercom has never claimed, much less produced, any damages related to the issue of Hypercom's engineers. Any claims for these damages are wholly speculative and unsupported by any record evidence. The Court should not tolerate Hypercom's recalcitrant attitude toward producing these critical documents. Hypercom's dilatory production has prejudiced Omron's ability to properly assess and defend against these alleged damages. Omron asks the Court to prevent Hypercom from introducing any and all evidence pertaining to Hypercom's alleged damages.

3

Omron has filed another motion in limine to exclude any evidence of attorneys' fees and costs related to Hypercom's pursuit of counterclaims and sanctions in the underlying lawsuits.

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B.

Hypercom Has Failed To Offer Any Expert Witness Testimony That Its Attorneys' Fees Are Reasonable Arizona requires all attorneys' fee awards to be reasonable before an award

can be made by the jury. Arizona explicitly limits recovery of attorneys' fees in cases involving an unjustified action, which are analogous to Hypercom's claims here, to reasonable fees. See Ariz. Rev. Stat. § 12-349 (A)(1) (2006) ("in any civil action commenced or appealed in a court of record in this state, the court shall assess reasonable attorney fees ... if the attorney or party does any of the following: 1. Brings or defends a claim without substantial justification."). Arizona also explicitly limits recovery of attorneys' fees in contract cases to reasonable fees. See Ariz. Rev. Stat. § 12-341.01 (2006) ("In any contested action arising out of a contract, express or implied, the court may award the successful party reasonable attorney fees.") (emphasis added). Even where parties include a provision stating that the prevailing party shall be entitled to a certain percentage of a note as attorneys' fees, the percentage-based fee must still be reasonable to be enforced. See Elson Dev. Co. v. Arizona Sav. & Loan Ass'n, 99 Ariz. 217, 223, 407 P.2d 930, 934 (Ariz. 1965). Additionally, attorneys' fees as damages for wrongful injunction, attachment or execution must be reasonable. See Jacobson v. Laurel Canyon Mining Co., 27 Ariz. 546, 234 P. 823 (1925) ("according to the great weight of authority reasonable counsel fees, incurred in procuring the dissolution of an injunction, are a proper element of damage.") (emphasis added); Coggins v. Wright, 22 Ariz. App. 217, 526 P.2d 741 (1974) (allowing reasonable and necessary attorneys fees as part of damages for dissolving wrongful writ of execution).

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1.

A Jury Has No Basis for Determining Reasonable Attorneys' Fees Without Expert Testimony

In the usual attorneys' fees context, i.e. applications for attorneys' fees pursuant to a statute such as Ariz. Rev. Stat. § 12-341.01 after a jury has found in a party's favor, the Court determines reasonable attorneys' fees. In such a context, an attorneys' fees expert is not necessary4. See Hammond v. A. J. Bayless Mkts., 58 Ariz. 58, 65, 117 P.2d 490, 493 (Ariz. 1941) ("the court . . . is itself an expert on [attorneys' fees] and may consider its own knowledge and experience in determining a reasonable and proper fee..."). Here, however, Hypercom is not asking the Court to award attorneys' fees qua attorneys' fees pursuant to a statute. Rather, Hypercom seeks attorneys' fees as the final element of damages for malicious prosecution or abuse of process. Without the aid of expert testimony, though, a jury is not equipped to analyze the necessary factors and determine reasonable attorneys' fees in a patent infringement claim. See Am. Home Assur. Co. v. United Space Alliance, LLC, 378 F.3d 482 (5th Cir. 2004) (holding that District Court committed error when it refused to grant motion for judgment as a matter of law on claim for attorneys' fees as damages presented to jury, because plaintiff offered no evidence that attorneys' fees were reasonable and necessary and no attorneys' fees expert); Wigmore on Evidence § 715 (Chadbourn rev. 1970) (when a jury, rather than a judge, is to make the determination of the reasonableness and necessity of attorneys' fees, expert testimony is required as to the

4

Although even in those circumstances the normal practice is to support the fee application with an affidavit from someone familiar with fees in similar cases affirming that both the hourly rate and the ultimate amount of fees requested are reasonable.

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value of the services rendered); Pioneer Nat'l Title Ins. Co. v. American Casualty Co., 459 F.2d 963, 964 (5th Cir. 1972) (when a jury awards attorneys' fees as damages, "[t]he amount of such reasonable attorney's fees shall be . . . fixed on the basis of

competent expert evidence as to the reasonable value of such services . . ."); Santry v. Richman, 383 N.E.2d 514, 515 (Mass. App. 1978) (finding sufficient evidence because of expert's testimony to support jury's factual determination of $1,200 as reasonable attorney's fee). The rationale for requiring an expert on attorneys' fees, especially in a case involving complex patent infringement claims, is clear. A jury has little basis for evaluating the factors set forth under Arizona law for determining whether attorneys' fees claimed as damages are reasonable. See Schweiger v. China Doll Rest. Inc., 138 Ariz. 183, 187, 673 P.2d 927, 931 (Ct. App. 1983). Hypercom, however, has neither disclosed nor listed an attorneys' fee expert and, as a result, Hypercom should be precluded from offering any evidence of attorneys' fees on the issue of damages. Furthermore, it has not given Omron any indication that its fees were reasonable, and has prevented Omron from taking any discovery on that topic by failing to produce evidence of its damages. Hypercom should not be permitted to introduce evidence of damages when Omron has been denied the opportunity to conduct any discovery about the damages. 2. Arizona Has Established Stringent Standards for Determining Reasonable Attorneys' Fees

Arizona courts have long imposed stringent standards in determining whether attorneys' fees are reasonable. In Schwartz v. Schwerin, 85 Ariz. 242, 336 P.2d 144 (1959), the Arizona Supreme Court first discussed the issue and held that an attorneys' fee -9Case 2:04-cv-00400-PGR Document 163 Filed 04/13/2007 Page 9 of 15

claim must establish the "reasonable value of services rendered." Id. at 245, 336 P.2d at 146. The court identified the following factors in determining the reasonableness of fees: (1) the qualities of the advocate; (2) the character of the work to be done; (3) the work actually performed by the lawyer, including the skill, time and attention given to the work; and (4) the result. Id. at 245-46, 336 P.2d at 146; see also Rule 29(a), Rules of the Arizona Supreme Court DR 2-106; Associated Indem. Corp. v. Warner, 143 Ariz. 567, 570, 694 P.2d 1181, 1184 (1985). Arizona courts typically find that no one element should predominate or be given undue weight. In Schweiger v. China Doll Restaurant, Inc., 138 Ariz. 183, 186-87, 673 P.2d 927, 930-31 (App. 1983), Arizona further addressed "determining a reasonable attorneys' fee in commercial litigation," noting that courts should consider the following factors: -"The beginning point in a development of a reasonable fee is the determination of the actual billing rate which the lawyer charged in the particular matter." -An "affidavit of counsel [indicating] the type of legal services provided, the date the service was provided, the attorney providing the service (if more than one attorney was involved in the appeal) and the time spent providing the service." -"It is insufficient to provide the court with broad summaries of the word done and time incurred." -"[S]ufficient detail to enable the court to assess the reasonableness of the time incurred."

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China Doll, 138 Ariz. at 187, 188, 673 P.2d at 931, 932.5 Finally, the District Court of Arizona has set forth a list of similar factors a party must state in a request for attorneys' fees, including but not limited to, awards in similar actions, the time and labor required of counsel, any time limitations imposed by the client or circumstances, and the amount of money, or the value of rights, involved and the results obtained. See Fed. Ariz. L.R. Civ. Proc. 54.2(c)(3) (2006). 3. A Jury Cannot Determine Reasonable Attorneys' Fees Without Documentation in General, Much Less Pursuant to the Specific Arizona Factors

Regardless of the factors enumerated in Schwartz, China Doll and Local Rule 54.2(c)(3), supra, the foundational element of proving damages remains. A party seeking attorneys' fees must present a minimal threshold level of documentation proving time was reasonably spent on matters pertinent to the litigation. In this case, however, Hypercom failed to produce its bills related to the underlying lawsuits during discovery, and has never made a proper production of any documentation. Hypercom should be excluded from offering this evidence at trial and, therefore, Hypercom lacks admissible documentation to support its claims for attorneys' fees or any other damages. The Supreme Court, and other courts to consider similar issues, have held that "the fee applicant bears the burden of establishing entitlement to an award and documenting the appropriate hours expended and hourly rates." Hensley v.

5

The Arizona Supreme Court effectively adopted the attorney fee standard of proof from China Doll in Wagenseller v. Scottsdale Memorial Hospital, 147 Ariz. 370, 394-95, 710 P.2d 1025, 1049-50 (1985) (superseded in part by A.R.S. § 23-1501) ("The amount [of attorney fees] is to be determined pursuant to Rule 21(c) and Schweiger v. China Doll Restaurant, Inc.").

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Eckerhart, 461 U.S. 424, 437 (1983) (emphasis added). Although "plaintiffs' counsel . . . is not required to record in great detail how each minute of his time was expended," Trs. of Dirs. Guild of Am. -Producer Pension Benefits Plans v. Tise, 234 F.3d 415, 427 (9th Cir. 2000) (quoting Hensley, 461 U.S. at 437 n.12), plaintiff must submit time descriptions proving that time was spent on the matters for which it seeks attorneys' fees. See Hensley, 461 U.S. at 437. The Supreme Court clarified in Hensley that counsel must, at a minimum, "identify the general subject matter of [their] time expenditures" through appropriate documentation. Id. at n. 12. The Court further elaborated: The most useful starting point for determining the amount of a reasonable fee is the number of hours reasonably expended on the litigation multiplied by a reasonable hourly rate. This calculation provides an objective basis on which to make an initial estimate of the value of a lawyer's services. The party seeking an award of fees should submit evidence supporting the hours worked and rates claimed. Where the documentation of hours is inadequate, the district court may reduce the award accordingly. Hensley, 461 U.S. at 433 (emphasis added). The Ninth Circuit, according to Hensley, stringently requires that "[t]he fee applicant bear the burden of documenting the appropriate hours expended in the litigation and must submit evidence in support of those hours worked." Gates v. Deukmejian, 987 F.2d 1392, 1397 (9th Cir. 1992). While both Hensley and Gates were based upon attorneys' fees awarded through civil rights litigation pursuant to 42 U.S.C. § 1988, the foundation requirements for reasonableness and the threshold of proof needed remains the same for any case where a party is seeking reasonable attorneys' fees as damages. See Hensley, 461 U.S. at 430 ("It is intended that the amount of fees awarded . . . be governed by the same standards which prevail in other - 12 Case 2:04-cv-00400-PGR Document 163 Filed 04/13/2007 Page 12 of 15

types of equally complex Federal litigation." ). Moreover, as explained above, Arizona has developed an even stricter documentation standard, requiring that a plaintiff seeking attorneys' fees must submit accurate and current records of the work done and the time spent. In China Doll, the Arizona Court of Appeals made clear that there was no difference in what constitutes "reasonable attorney fees" regardless of the vehicle through which those fees are awarded. China Doll, 138 Ariz. at 186, 673 P.2d at 930. Examining Arizona's precedent regarding attorney fees cases, China Doll noted a previous Arizona case that "held that it is error to award fees absent any proof of what is 'reasonable."' Id. (quoting Crouch v. Pixler, 83 Ariz. 310, 315, 320 P.2d 943, 946 (1958)). And in Arizona, documentation must be provided to support the actual time billed and to explain the matter where time was expended. Broad summaries of the work performed and time incurred is not sufficient. Id. at 188, 673 P.2d at 932. Rather, counsel is required to present evidence proving "the type of legal services provided, the date the service was provided, the attorney providing the service . . . and the time spent in providing the service." Id. (internal citation omitted). II. CONCLUSION

Hypercom's claims for attorneys' fees as damages should be excluded because (1) Hypercom failed to produce any evidence during discovery, despite its affirmative obligations under the Federal Rules of Civil Procedure, and (2) Hypercom failed to produce any evidence that would allow Hypercom to meet its substantive burden of proof regarding the amount of any damages. Hence, this Court should exclude any evidence related to Hypercom's claims for attorneys' fees and other damages.

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RESPECTFULLY SUBMITTED on April 13, 2007.

By: /s/ Matthew A.C. Zapf Matthew A.C. Zapf A. Colin Wexler GOLDBERG KOHN 55 East Monroe Street Suite 3300 Chicago, IL 60603-5792 David P. Irmscher (15026-02) John K. Henning (25203-49) BAKER & DANIELS LLP 111 East Wayne Street Suite 800 Fort Wayne, IN 46802 H. Michael Clyde (009647) PERKINS COIE BROWN & BAIN P.A. 2901 North Central Avenue Suite 2000 Phoenix, AZ 85012-2788 Attorneys for Defendant Omron Corporation

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CERTIFICATE OF SERVICE I hereby certify that on April 13, 2007, I electronically transmitted the attached documents to the Clerk's Office using the CM/ECF System for filing and transmittal of a Notice of Electronic Filing to the following CM/ECF registrants: Andrew Foster Halaby Ray Kendall Harris John Kenyon Henning, IV David P. Irmscher Sid Leach Monica Anne Limon-Wynn Paul Moore A. Colin Wexler Matthew A.C. Zapf [email protected] [email protected] [email protected] [email protected] [email protected] [email protected] [email protected] [email protected] [email protected]

I hereby certify that on April 16, 2007, I caused the attached document to be served by hand delivery on Judge Paul G. Rosenblatt, United States District Court of Arizona, 401 West Washington Street, Phoenix, Arizona 85003-2118

/s/ Lisa M. Sandoval

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