U.S. Supreme Court To Consider Whether Movant Obtaining Preliminary Injunction Is “Prevailing Party” Entitled To Attorneys’ Fees

The U.S. Supreme Court has agreed to resolve an apparent conflict in the federal appellate courts concerning whether a plaintiff who successfully obtains a preliminary injunction is a “prevailing party” for purposes of fee-shifting statutes. Struhs v. Wyner, 127 S. Ct. 1055 (granting cert. Jan. 12, 2007).

The Eleventh Circuit ruled in Wyner v. Struhs, 179 Fed. Appx. 566 (2006), that plaintiffs who sued under 42 U.S.C. § 1983 and obtained a preliminary injunction against enforcement of state rules that would have interfered with their public performance art that featured nudity, but did not prevail on the later facial challenge to those rules, were still “prevailing parties” entitled to attorneys’ fees. In contrast, the Fourth Circuit held in Smyth v. Rivero, 282 F.3d 268 (2002), that a preliminary injunction is not a ruling on the merits and therefore cannot be the basis for considering the movant a “prevailing party.”

Party Performing Contract Under Protest May Bring Declaratory Judgment Act Claim

In the context of a patent dispute, the U.S. Supreme Court has clarified that federal jurisdiction exists under the Declaratory Judgment Act even though a plaintiff actually performs under a disputed contract, as long as the plaintiff maintains that performance is subject to controversy.

In MedImmune v. Genentech, Inc., 127 S. Ct. 764 (U.S. Jan. 9, 2007), Genentech maintained that MedImmune’s primary product infringed on its patent and demanded royalties. MedImmune maintained that the patent was not enforceable but agreed to pay royalties through a license agreement under protest because of the risk of liability for treble damages and attorney’s fees. It then brought a declaratory judgment action, but the trial court and the Federal Circuit held that such claims could not be brought because MedImmune in fact was performing under the contract so there was no dispute for purposes of Article III.

The U.S. Supreme Court held that jurisdiction did exist, and that by enacting the Declaratory Judgment Act, Congress specifically wanted to avoid requiring a party to breach a contract as a precondition to federal jurisdiction. It noted that the Court’s jurisprudence in government cases made this clear (i.e., Congress did not require a party to actually perform an illegal act for there to be jurisdiction for a declaratory judgment action), and agreed with the many lower courts that had reached the same conclusion with respect to disputes among private parties.

Federal Courts Borrowing State Limitations Periods Must Not Borrow Service Rules

It is well-established federal practice that where an action arises under federal law but Congress has not established a specific limitations period, courts borrow the statute of limitations for the most closely analogous action in the relevant state. However, in S.J. v. Issaquah School Dist. No. 411, 470 F.3d 1288 (9th Cir. Dec. 11, 2006), the court noted that this rule does not extend to borrowing state procedural rules that might be included in that statute.

In this case, it was undisputed that the district court properly applied the limitations period in the Washington Administrative Procedure Act (“WAPA”) to plaintiffs’ claims under the federal Individuals with Disabilities Act. However, the appellate court held that the lower court should not also have applied the 30-day limitations period from the WAPA governing the amount of time in which to effect service of process. Instead, it should have applied Fed. R. Civ. P. 4(m), which establishes a 120-day limit for serving process.

Texas Requires New Trial On Attorney’s Fee Award After Damages Cut On Appeal

The Texas Supreme Court has considered the effect on an attorney’s fee award of an appellate ruling that drastically reduced the damages awarded.

In Barker v. Eckman, 213 S.W.3d 306 (Tex. Nov. 17, 2006), plaintiffs sued for multiple breaches of contract going back several years. Over objections that most of the claims were untimely, the court entered judgment on a jury verdict for $112,000 and for attorney’s fees under the contract of $250,000. The intermediate appellate court struck all but $16,180 in damages, but held that appeal of the attorney’s fees issue had been waived. The Supreme Court upheld the reduction in damages, but reversed on the waiver issue.

Finding that there was no proper record on which to base a reduction of the fee award at the appellate level, the court remanded for a new trial on the amount of fees attributable to the upheld claims. The court noted that “[n]ot every appellate adjustment to the damages which a jury considered as ‘results obtained’ when making attorney’s fees findings will require reversal,” but in this case the large reduction in damages showed that the error was not harmless and required a new trial.

Statute Awarded Fees On Motions To Enforce Even Though Judgment Was Silent

Under California Corporations Code § 15634, a limited partner has the right to inspect the partnership’s books and records. In Berti v. Santa Barbara Beach Properties, 145 Cal.App.4th 70, 51 Cal.Rptr.3d 364 (2d Dist. Nov. 27, 2006), plaintiffs brought litigation under § 15634 that ultimately was settled under an agreement that was merged into a judgment that did not provide or attorneys’ fees.

When plaintiff brought various motions to enforce the settlement and then sought attorneys’ fees for those efforts, the trial court denied the motion as there was no fee provision in the judgment. However, the appellate court found that the statutory right to fees was superior, and entitled plain­tiffs to fees notwithstanding the absence of a provision for fees within the judgment.

This case illustrates a principle the federal courts have grappled with for some time as well under fee-shifting statutes and offers of judgment. The lesson here is -- before you settle, make sure you know whether attorney's fees snuck their way into the settlement by operation of law.

State Court Default Judgment Estopped Debtors From Re-Litigating Dischargability

In Evans v. Ottimo, 469 F.3d 278 (2d Cir. Nov. 20, 2006), the debtors attempted to litigate whether their debts were nondischargeable under § 523(a) of the Bankruptcy Code. The debt involved a default judgment for Evans for $400,000 entered by a New York state court in which the court found that the debtors had committed fraud. The debtors never appealed that judgment, and commenced bankruptcy proceedings five years later.

Evans argued that the debtors were collaterally estopped from contesting that a judgment for damages due to fraud was nondischargeable, but the bankruptcy court disagreed because the judgment in issue was entered in default.

The district court reversed and the Second Circuit agreed, finding that collateral estoppel principles are applicable even in default judgment situations. The two key conditions for estoppel were satisfied here -- the issue was identical between proceedings, and the estopped party had a full and fair opportunity to litigate the issue in the prior action.

Mandamus Not Warranted To Prevent Trial From Improperly Being Tried To Jury

The Seventh Circuit has denied mandamus in a case involving a late jury demand.

In In re Linee Aeree Italiane (Alitalia), 469 F.3d 638 (7th Cir. Nov. 27, 2006), the plaintiff demanded a jury trial after the defendants’ status changed from a state-controlled entity (for which a non-jury trial is provided by statute) to a privatized company. Alitalia claimed that the district court should not have allowed plaintiff to make a jury demand based on facts that developed after the initial filing of the case, and sought mandamus. However, the Seventh Circuit concluded that even if Alitalia’s argument about the timing of a jury demand were correct, having to wait to appeal that issue after the entry of final judgment on a jury verdict would not cause Alitalia the sort of irreparable harm required to support mandamus relief. Instead, the appellate court could vacate the judgment and order a bench trial.

Seventh Circuit Reaffirms Allowing Excusing Indigents From Taxation Of Costs

Federal Rule of Civil Procedure 54(d) provides that costs other than attorneys’ fees “shall be allowed as of course to the prevailing party unless the court otherwise directs.” Most courts have held that the final part of that clause gives district courts the discretion to excuse indigent persons from having to pay costs.

In Rivera v. City of Chicago, 469 F.3d 631 (7th Cir. Nov. 21, 2006), the City of Chicago asked the appellate court to abolish its precedent creating the indigence exception. The court refused to do so.

Instead, the Seventh Circuit provided guidance to district courts regarding the exercise of their discretion. First, they must make a threshold factual finding that the losing party is incapable of paying the court-imposed costs at this time or in the future. Second, the court should consider the amount of costs, good faith of the losing party, and the closeness and difficulty of the issues raised by a case. Finally, the court must have and state an explanation for its decision to make an exception and deny costs.

Trial Attorney’s Role In Settlement Insufficient To Warrant Reversal Of Jury Verdict

Sometimes the settlement of litigation itself becomes the subject of its own litigation. When that happens, the parties face a risk that if they choose to be represented in the second case by the same counsel who negotiated the settlement of the first case, the other side may claim that such counsel is a fact witness and should be disqualified.

However, in Fonten Corp. v. Ocean Spray Cranberries, Inc., 469 F.3d 18 (1st Cir. Nov. 17, 2006), the district court denied a motion to disqualify and the attorney was permitted to participate in the trial, and the appellate court affirmed.

The First Circuit concluded that the mere fact that the attorney participated was not sufficiently prejudicial to justify ordering a new trial. Rather, the actual conduct had to be evaluated, and here it did not involve implying that any witness’ version of events was inaccurate based on the attorney’s inside knowledge.

Award Of Costs That Exceeded Authorized Categories Reversed

Under U.S. Supreme Court precedent, absent specific statutory authorization for recovery of additional expenses, district courts are limited in taking costs against the losing party in federal litigation by Fed.R.Civ.P. 54(d) and 28 U.S.C. § 1920. Crawford Fitting Co. v. J.T. Gibbons, Inc., 482 U.S. 437, 445 (1987).

The Eleventh Circuit recently applied that principle in Corwin v. Walt Disney Co., 468 F.3d 1329 (11th Cir. Nov. 2, 2006), to disallow $120,000 of a total award of $171,000, despite the losing party’s failure to timely object to the cost award. The court specifically found that there was no authority to award costs for (a) expert witness fees beyond the statu­tory $40 per diem; (b) travel expenses for attorney travel; (c) mediation expenses; (d) various discovery expenses; and (e) paralegal services.

[Note: This opinion was vacated and superseded at 475 F.3d 1239.]