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

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Sid Leach (#019519) Monica A. Limón-Wynn (#019174) Snell & Wilmer L.L.P. One Arizona Center 400 E. Van Buren Phoenix, Arizona 85004 Attorneys for Defendants MasterCard International, Inc. and MasterCard International, L.L.C. Internet: [email protected] [email protected]

IN THE UNITED STATES DISTRICT COURT FOR THE DISTRICT OF ARIZONA Lexcel Solutions, Inc., Plaintiff, vs. Case No. CV-03-1454-PHX-JAT REPLY IN SUPPORT OF MASTERCARD'S MOTION FOR AN AWARD OF REASONABLE ATTORNEYS' FEES

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Snell & Wilmer L.L.P.

MasterCard International, Inc. and MasterCard International, L.L.C., both Delaware corporations, Defendants.

Lexcel's response to MasterCard's motion for an award of attorneys' fees contests certain entries in the billing records submitted in support of MasterCard's motion for attorneys fees. In accordance with the requirements of LRCiv 54.2(d), MasterCard's counsel sent copies of the supporting documentation to Lexcel's counsel in advance, and made attempts to discuss and narrow the issues concerning MasterCard's submission. None of Lexcel's objections were mentioned at that time. In fact, Lexcel's counsel made no effort to work in good faith to narrow the areas of dispute regarding the billing entries prior to the time that MasterCard filed its Memorandum of Points and Authorities. The issues subsequently raised by Lexcel could have been timely addressed if Lexcel had
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complied with its obligations under LRCiv 54.2(d). A non-moving party should not be allowed to completely disregard its obligations under LRCiv 54.2(d), and then surprise the moving party with numerous objections that could have been addressed in advance if the non-moving party had complied with the procedure set forth in the local rules. The Court, therefore, should give little weight to the objections raised in Lexcel's response. Lexcel's response also argues that the attorneys' fee provision in the parties' Agreement does not apply in this case. Unquestionably, the parties' Agreement was at the heart of this lawsuit. That Agreement contained a mandatory fee provision entitling the prevailing party to an award of its reasonable attorneys' fees. As the prevailing party, MasterCard is entitled to recover all of its reasonable attorneys' fees incurred in defending against Lexcel's lawsuit because each of Lexcel's claims is based either on allegations requiring certain contractual provisions to be construed or interpreted, or because they sought to enforce the provisions. In the event the Court determines that Lexcel's copyright claim and/or the related trade secret misappropriation claim do not fall within the mandatory fee provision in the Agreement, then fees are properly awarded in favor of MasterCard for these two claims pursuant to 17 U.S.C. § 505. Section 505 authorizes the Court to award attorneys' fees to the party that prevails on a claim for copyright infringement and the related claims ­ including where a defendant successfully defeats the copyright claim. Contrary to the suggestion in plaintiff's response brief, there is no requirement that defendant first establish that Lexcel's copyright claim was frivolous or was brought in bad faith in order to be eligible to recover the attorneys' fees incurred. For these reasons, MasterCard respectfully requests that the Court enter an Order awarding fees in favor of MasterCard in the amount of $530,219.56.

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II.

MASTERCARD IS AUTHORIZED TO RECOVER THE REQUESTED REASONABLE ATTORNEYS' FEES The Confidentiality Agreement Was Fully Incorporated Into And Made A. Part Of The License Agreement The plain language of the parties' contract contradicts and renders meaningless

Lexcel's primary argument in Section I of its response brief that the terms of the Confidentiality Agreement do not apply to the License Agreement. (See Response at pp. 4-7.) As set forth in MasterCard's Motion for An Award of Attorneys' Fees ("Motion"), the terms of the parties' Confidentiality Agreement dated September 28, 1995 were fully incorporated into and made part of the parties' License Agreement effective December 12, 1995 pursuant to Amendment No. 1 of the License Agreement that was executed on December 12, 1995. (Motion at p. 2.) Amendment No. 1 expressly provided that the License Agreement was amended "to read as follows:" Licensee and Licensor agree to be bound by the provisions of the Confidentiality Agreement dated September 28, 1995, attached hereto and made a part of this Agreement. . . . (Amendment No. 1, at 1 (Exhibit 1 to Doc. #122 "Plaintiff's Statement of Facts").) Thus, the attorneys' fee provision was made part of the Agreement, and the parties agreed to be bound by it. In this case, the parties' initial Agreement was represented by more than one document. The parties took Lexcel's standard License Agreement, and simultaneously amended it with a contemporaneously executed Amendment No. 1, which further incorporated a previously executed Confidentiality Agreement that was also made part of the Agreement. See MasterCard's Statement of Facts in Support of Defendants' Motion for Summary Judgment, ¶¶ 9 & 10, and supporting evidence (Doc #104). Thus, the initial Agreement comprised three documents that must be read together. Lexcel's objection is further flawed because it is based on the faulty premise that the Confidentiality Agreement does not include specific language like the language of Addendum No. 5. (Response at 4-5.) Unlike the Confidentiality Agreement dated September 28, 1995 that was entered into before the License Agreement and Addendum

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No. 1 were executed on December 12, 1995, Addendum No. 5 was entered into on April 1, 1998. Of course, therefore, Addendum No. 5 made express reference to the earlierexecuted License Agreement ­ just as would be expected. B. The Copyright Act Provides Additional Support for Awarding Fees in Favor of MasterCard

As explained in MasterCard's Memorandum of Points and Authorities, the Copyright Act of 1976, 17 U.S.C. § 505 provides additional support for an award of 7 attorneys' fees in favor of MasterCard for Counts 2 and 4. 8 Lexcel's trade secret misappropriation claim was alleged as a breach of contract, 9 and required the Court to construe or enforce the Agreement. For example, Lexcel's 10 original complaint said, "It is further alleged that MasterCard has used the confidential 11 information to develop or to assist in the development of competing simulation hardware.
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12 These actions are in direct breach of the Agreement, as amended and supplemented." 13 Plaintiff's Original Complaint ¶23 (Doc. #1). Lexcel's allegations in support of Count 2 in 14 Plaintiff's Second Amended Complaint (Doc. #78) rely upon specific contractual 15 provisions in Addenda Nos. 5 and 8. 16 Only in the event that the Court disagrees that Lexcel's misappropriation of trade 17 secrets claim (Count 2) did not require the Court to construe the Agreement, and disagrees 18 that the claim is not intertwined with the contract, must the Court determine whether 19 Count 2 is "related to" Lexcel's claim for copyright infringement (Count 4.). Similarly, 20 only in the event that the Court finds that Lexcel's allegations supporting Count 4 that 21 specifically refer to Article 7.4 of Addendum No. 5 did not call in any way for the Court 22 to construe the parties' Agreement, should the Court determine whether to award fees 23 under the Copyright Act. 24 In Fogerty v. Fantasy, 510 U.S. 517, 534 (1994), the lower court had ruled that 25 attorneys' fees were not available to the prevailing defendant under § 505 unless the 26 plaintiff's action was frivolous or brought in bad faith. United States Supreme Court 27 28
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rejected that standard, and reversed the lower court's order denying an award of attorneys' fees in favor of the successful defendant. In Fogerty, defendant musician John Fogerty successfully defended against a copyright infringement claim brought against him by the company who had acquired the publishing rights of a song written by Fogerty. 510 U.S. at 519. Fogerty moved for an award of his reasonable attorneys' fees pursuant to 17 U.S.C. § 505. The district court denied Fogerty's request for fees finding that the suit had not been brought frivolously or in bad faith. In affirming the district court decision, the Ninth Circuit Court of Appeals applied a standard for awarding attorneys' fees that treats successful plaintiffs differently than successful defendants. 510 U.S. at 520-21. Under that so-called "dual standard," a prevailing plaintiff generally was awarded attorneys' fees as a matter of course, while a prevailing defendant was required to show that the action was "frivolous or brought in bad faith." Id. The United States Supreme Court granted certiorari to resolve the conflict between those Circuit Court of Appeals who applied the "dual standard" like the Ninth Circuit (e.g., Second, Seventh, and D.C. Circuits), and those awarding fees under an "even-handed" approach (e.g., Third, Fourth and Eleventh). 510 U.S. at 521 n.8. In rejecting the requirement for a prevailing defendant to demonstrate frivolousness or bad faith to be eligible for an award of attorneys' fees, the United States Supreme Court found that neither the legislative history nor the statutory language of 17 U.S.C. § 505 suggested that a successful defendant should be treated any differently than a successful plaintiff. 510 U.S. at 522-23. Even the authority relied upon by Lexcel in its response brief supports an award of attorneys' fees in favor of MasterCard under § 505. In Maljack Productions, Inc. v. Goodtimes Home Video Corp., 81 F.3d 881 (9th Cir. 1996), the Ninth Circuit affirmed the district court's award of attorneys' fees for the defendant who obtained summary judgment on plaintiff's copyright claims. The Ninth Circuit noted that the defendant (like MasterCard here) had obtained "total success in defending against [plaintiff's] copyright
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claims." The Ninth Circuit awarded fees to the defendant even though it had found that plaintiff's lawsuit was not motivated by bad faith or frivolous. 81 F.3d at 890-91. Likewise, in Apple Computer, Inc. v. Microsoft Corp., 35 F.3d 1435 (9th Cir. 1994), the Ninth Circuit noted that the district court, which had denied fees below, "clearly indicated that it might be inclined to award attorney's fees if a finding of bad faith or frivolousness were no longer required." The Ninth Circuit remanded the case to the district court for further consideration. 35 F.3d at 1448. In this case, while a finding of bad faith or frivolous is not required to award fees in favor of MasterCard, evidence of "factual unreasonableness" provides support for an award of fees. For example, and as set forth in the Memorandum of Points and Authorities, Lexcel continued to advocate its claim for copyright infringement even after its own expert admitted that she had no evidence of copyright infringement after having reviewed the source code for MasterCard's replacement software. III. THE FEES REQUESTED ARE REASONABLY AND PROPERLY INCLUDED Prior to filing its Memorandum of Points and Authorities, MasterCard provided Lexcel with a copy of its billing entries. MasterCard had anticipated that it could respond to any specific questions or objections that Lexcel had about any of its entries, including providing additional information if needed. Lexcel refused to provide any comments whatsoever. But yet in its response brief, Lexcel attempted to assert shotgun objections to many billing entries. Even then, Lexcel did not specifically identify and discuss such objections, but merely provided color-coded exhibits accompanying Lexcel's response and left it to the Court to sort through the exhibits and attempt to determine specifically what Lexcel's objections were. This Court is not required to scour Lexcel's papers in search of objections to specific billing entries. See Keenan v. Allen, 91 F.3d 1275, 127879 (9th Cir. 1996) (declining to scour opposing papers on summary judgment motion). Moreover, MasterCard could have addressed Lexcel's objections in its Memorandum of Points and Authorities if Lexcel had complied with its obligation under the local rules to

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meet and confer. Many of Lexcel's objections were that the billing records filed by MasterCard should have contained additional information. But those objections could have been remedied before MasterCard filed the supporting documentation, and additional information provided if Lexcel had made its objections known beforehand. Because Lexcel failed to comply with the local rules and make a good faith effort to narrow the issues before the Memorandum of Points and Authorities was filed, the Court should give no consideration whatsoever to Lexcel's objections to certain billing entries. Nevertheless, each of Lexcel's untimely raised objections is addressed below. A. Billing Descriptions Were Redacted to Protect Attorney-Client Privilege and Work Product

MasterCard properly redacted the billing descriptions set forth in Exhibit C to its Memorandum of Points and Authorities by redacting information protected by the attorney-client privilege and attorney work-product doctrine. The redacted version of the billing descriptions adequately and sufficiently describe the work performed and the service generally provided such that the Court. If the Court prefers, MasterCard is willing to provide an unredacted version of Exhibit C for the Court's in camera inspection. B. Fees Incurred by Paralegals Are Properly Recoverable

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Snell & Wilmer L.L.P.

Had Lexcel complied with its obligation to identify areas of dispute and work in good faith to resolve them before MasterCard filed its Memorandum, MasterCard would have known that Lexcel objected to the paralegal entries regarding time spent "organizing and filing newly-received documents" from October 2004 through August 2005. MasterCard would have been able to explain that such time necessarily was incurred by the paralegals to prepare for trial should the Court have denied the summary judgment motion. Document production from MasterCard was largely managed by the law firm of Armstrong Teasdale in St. Louis. The documents received by the Snell & Wilmer law firm came from the Armstrong Teasdale firm, and were received by Snell & Wilmer at a later date even though the documents had been produced to Lexcel earlier during discovery. Those documents had to be indexed and organized into a database in order to

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prepare for the possibility of trial. 1 Significantly, MasterCard's request for a fee award did not include any fees or costs incurred by Armstrong Teasdale LLP throughout the litigation, and thus did not include any of the extensive costs incurred by MasterCard in responding to Lexcel's overly broad document production requests. Thus, the time incurred by the Snell & Wilmer paralegals in late 2004 and 2005 was not duplicative of any fees included in MasterCard's request for attorneys' fees. Since MasterCard's request included the paralegal fees incurred for organizing and maintaining documents only once, these entries are properly included and should be reimbursed. C. Lexcel's Conduct Required MasterCard to Incur Fees in This Action Regarding Alleged Patent Infringement

Lexcel's response complains that MasterCard's counsel in this case included attorneys' fee entries that refer to patent infringement claims. However, Lexcel attempted
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12 to amend its complaint in this case and assert a "conditional" patent infringement claim as 13 Count 9 in this action. (Doc. #42). The Court denied Lexcel's attempt to add Count 9 to 14 this case. (Doc. #74). Lexcel moved to consolidate this case with the patent case, thus 15 forcing MasterCard's counsel in this case to respond and address the patent case in the 16 context of the requested consolidation. This Court denied Lexcel's motion for 17 consolidation. (Doc. #100.) Lexcel cannot complain that MasterCard's attorneys were 18 forced to perform legal services relating to patent infringement claims when Lexcel itself 19 attempted to inject patent issues into this case, or to consolidate this case with the patent 20 case. Moreover, after Lexcel's unsuccessful attempt to amend the pleadings in this case to 21 include patent claims, Lexcel then tried to circumvent this Court's discovery orders by 22 23 Lexcel sought to amend its pleadings in the patent case to include claims that duplicated 24 25 26 27 28
The Court's Scheduling Order dated November 10, 2003 ordered the parties to file a notice of readiness for final pretrial conference within 10 days of the resolution of the last dispositive motion, which would trigger the setting of a firm trial schedule. (Scheduling Order at p. 6.)
2 1

Snell & Wilmer L.L.P.

pleading all of the claims pending in this case, and asserting them in the patent case. 2

The patent case is separately pending in this District before Judge Neil Wake as Civil Action No. CV04-1336 PHX NVW.

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the claims in this case, after this Court refused to give Lexcel multiple extensions of the deadline for completing discovery. Consequently, MasterCard's counsel in this case was forced to become involved in the patent case while those duplicative claims were pending in that case. In a telephone hearing on November 4, 2004, Judge Wake in the patent case found that Lexcel's conduct was unjustified: [The Court:] I'm just at a loss as to see what the legitimate good faith basis was for pleading in this case all of the claims that were pending in the other case and that were far along and close to being ready for trial. And then the explanation, Mr. Boyd, you have given, either I'm not capable of understanding it or it doesn't rise to the level of anything other than an attempt to circumvent the discovery orders before Judge Teilborg. *** There may well have been bad faith. I'm not making a judgment about that. But while ­ actually, I am making a judgment about that, Mr. Boyd, as to the lack of justification for [Lexcel's] attempting to replead in this case the entire case that is pending before Judge Teilborg. (Transcript of Hearing on November 4, 2004, at pp. 11-13.) Therefore, its was Lexcel's own actions that forced MasterCard's counsel in this case to perform legal services relating to the patent dispute, because Lexcel repeatedly engaged in legal maneuvers to overlap the issues in the cases. The attorneys' fees requested were reasonably incurred in connection with the defense of this action. D. Legal Research Fees are Properly Recoverable

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Snell & Wilmer L.L.P.

Lexcel's Response incorrectly contends that MasterCard should be denied fees in the amount of $3,625.71 for legal research the entry does not "identify the legal research issue researched." (Response at pp. 11 and 14-15.) This issue again is one that could have been resolved if Lexcel had many any attempt to identify such issues prior to the time that MasterCard submitted its Memorandum of Points and Authorities. Instead, Lexcel focuses only on the chart setting forth the fees incurred for legal research, but apparently made no attempt to review the billing descriptions for the
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attorneys' at or around the same date as the legal research charge appeared. Had Lexcel examined the attorney billing entries, it would have found entries corresponding with the charge that appears on the legal research chart. The following excerpts from the billing entries of Sid Leach illustrate that the purpose of the legal research is plainly set forth in Exhibit C and should be reimbursed as requested. For example, entries in mid-September demonstrate that Mr. Leach was conducting "legal research to support summary judgment motion." (See Exhibit C to Memorandum of Points and Authorities at entry dated September 11, 2003.) And, in late October 2003, Mr. Leach was conducting "legal research in support of case management plan," and "legal research in support of reply on summary judgment motion and for preparation of case management plan." (See Exhibit C to Memorandum of Points and Authorities at entries dated October 27, 2003 and October 29, 2003.) In mid-November 2003, Mr. Leach conducted "legal research for opposition to motion to Lexcel's Amend [sic] Complaint." (See Exhibit C, at entry dated November 14, 2003.) In March 2004, Mr. Leach conducted legal research for the opposition brief to Lexcel's motion to amend complaint. (See Exhibit C at entries dated March 11, 2004 and March 12, 2004.) On November 2, 2004, Mr. Leach conducted legal research in support of MasterCard's opposition brief to Lexcel's motion for partial summary judgment. Id. at November 2, 2004. Mr. Leach conducted additional research "in support of reply brief," "re specific facts required to preclude summary judgment," "re reverse engineering" and "re recent copyright cases." (Id. at November 18, 19, and 22, 2004 and December 18, 2004). If Lexcel had complied with its obligation under the local to meet and confer, and had made this objection at that time, MasterCard could have narrowed the issues by supplementing the descriptions relating to legal research. IV. CONCLUSION For the foregoing reasons and the reasons set forth in MasterCard's Motion for An Award of Reasonable Attorneys' Fees and the Memorandum of Points and Authorities,
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Snell & Wilmer L.L.P.

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MasterCard respectfully requests that the Court enter an Order awarding reasonable attorneys' fees to MasterCard in the amount of $530,219.56. RESPECTFULLY SUBMITTED this 12th day of December, 2005. SNELL & WILMER, LLP By s/ Sid Leach Sid Leach Monica A. Limón-Wynn One Arizona Center 400 E. Van Buren Phoenix, Arizona 85004 Attorneys for Defendants MasterCard International, Inc. and MasterCard International, L.L.C.

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CERTIFICATE OF SERVICE I hereby certify that on December 12, 2005, I electronically transmitted the attached document 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: Michael O. Sutton Steven S. Boyd Nathaniel C. Dunn Locke Liddell & Sapp LLP 600 Travis St Ste 3400 Houston, TX 77002-3095 Attorneys for Plaintiff Lexcel Solutions, Inc.

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Snell & Wilmer L.L.P.

s/ Sid Leach

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