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Herdguard, LLC v. NXT Generation Pet, Inc.

United States District Court, E.D. Kentucky, Central Division, Lexington

July 15, 2019

HERDGUARD, LLC, Plaintiff,
v.
NXT GENERATION PET, INC., et al., Defendants.

          MEMORANDUM OPINION AND ORDER

          JOSEPH M. HOOD SENIOR U.S. DISTRICT JUDGE

         This matter is before the Court upon the motion of Plaintiff Herdguard, LLC, for attorneys' fees. [DE 119]. Herdguard argues that they are contractually entitled to attorneys' fees as the prevailing party in this action for breach of contract.

         In response, Defendant NXT Generation Pet, Inc., does not dispute that Herdguard is contractually entitled to attorneys' fees. Instead, NXT argues that Herdguard has failed to meet its burden of proving the amount of attorneys' fees to which it is entitled. [DE 122].

         Herdguard replied and provided unredacted invoices as proof of its attorneys' fees. [DE 123]. Subsequently, the Court allowed additional briefing considering the unredacted invoices were filed in Herdguard's reply in support of the motion. [DE 124].

         Having reviewed the motions, supplemental briefing, and unredacted invoices, Herdguard's motion for attorneys' fees [DE 19] is GRANTED IN PART and DENIED IN PART. Since the Mutual NDA is governed by New Jersey law, the substantive law of the state of New Jersey should govern the calculation of attorneys' fees and costs in this action. Herdguard, as the prevailing party in this litigation, is contractually entitled to reasonable attorneys' fees and costs related to this action. But some of Herdguard's requested fees and costs must be deducted for various reasons. Thus, Herdguard is entitled to $48, 562.50 in attorneys' fees and $3, 758.71 in costs, for a total sum of $52, 321.21.

         I. Procedural Background

         Plaintiff Herdguard, LLC, filed this action for breach of contract, breach of the duty of good faith and fair dealing, unjust enrichment, tortious interference with business relationships, and civil conspiracy against five Defendants in Garrard Circuit Court. [DE 1-1]. The initial complaint sought actual damages, punitive damages, and attorneys' fees. The action was removed to this Court based on diversity jurisdiction. [DE 1].

         Through various voluntary dismissals and grants of summary judgment, the action was reduced to a single breach of contract count against Defendant NXT Generation Pet, Inc. [See DE 18, Order (Dismissing claims against Eco-Shell); DE 25, Order (Dismissing claims against Pura Naturals); DE 90, Memorandum Opinion and Order (Dismissing all claims against Jason Riccardi, dismissing certain counts against Vermont Soap and granting Vermont Soap's motion for summary judgment, and granting in part and denying in part NXT's motion for summary judgment)]. As a result, the only remaining claim was Herdguard's breach of contract claim against NXT arising from alleged violation of the non-circumvention clause of the nondisclosure agreements (“NDAs”). [See DE 90].

         A trial by jury on the remaining breach of contract dispute was held on March 26, 2019, and March 27, 2019. [DE 112; DE 114]. The jury returned a verdict for Herdguard and awarded $120, 000 in damages to Herdguard. [DE 117].

         Now, Herdguard claims that it is contractually entitled to attorneys' fees from NXT as the prevailing party in this action. [DE 119]. The Mutual NDA provides that “[i]n the event of any legal proceeding between the parties arising out of or related to this Agreement, the prevailing party shall be entitled to recover, in addition to any other relief awarded or granted, its costs and expenses (including reasonable attorneys' fees and expert witness' fees) incurred in any such proceeding.” [DE 68-14 at 2, Pg ID 859]. The Mutual NDA is governed by New Jersey law. [Id.].

         NXT does not dispute that Herdguard is entitled to fees. The only dispute is whether Herdguard has provided sufficient proof of its requested attorneys' fees in this action.

         II. Legal Standard and Governing Law

         The parties contend that federal common law provides the appropriate method for calculating attorneys' fees in this matter. This understanding is supported by an unpublished Sixth Circuit decision. See Graceland Fruit, Inc. v. KIC Chems., Inc., 320 Fed.Appx. 323, 328 n. 6 (6th Cir. 2008). But “Graceland conflicts with a longstanding principle in Sixth Circuit law: State substantive law governs contract interpretation.” In re Black Diamond Min. Co., LLC, No. 13-cv-125-ART, 2014 WL 4104101, at *3 (E.D. Ky. Aug. 6, 2014) (citing In re Martin, 761 F.2d 1163, 1167- 68 (6th Cir. 1985)). The Mutual NDA at issue in this action is governed by New Jersey law.

         Since “[c]ontract interpretation is-and traditionally has been-an issue of state law, ” In re Black Diamond, 2014 WL 4104101 at *3 (citing Bituminous Cas. Corp. v. J & L Lumber Co., Inc., 373 F.3d 807 (6th Cir. 2004)), the better approach is to apply substantive New Jersey state law rules for calculating attorneys' fees. Thus, in this case, the substantive state law of New Jersey should provide the appropriate method for calculating attorneys' fees since the Mutual NDA is governed by New Jersey law.

         III. Analysis

         New Jersey generally follows the “American Rule, ” under which litigants must bear their own litigation costs and attorneys' fees. Innes v. Marzano-Lesnevich, 136 A.3d 108, 113 (N.J. 2016). But New Jersey law also allow parties to contractually agree to shift the costs and fees of litigation to the prevailing party in a lawsuit. Litton Indus., Inc. v. IMO Indus., Inc., 982 A.2d 420, 427-28 (N.J. 2009) (“In general, New Jersey disfavors the shifting of attorneys' fees. . . . However, a prevailing party can recover those fees if they are expressly provided for by statute, court rule, or contract.” (internal citations and quotations omitted)). This Court has broad discretion in awarding attorneys' fees under a valid contractual authorization for an award of such fees. See Graceland Fruit, 320 Fed.Appx. at 325 (quoting United States Fid. & Guar. Co. v. Braspetro Oil Servs. Co., 369 F.3d 34, 74 (2d Cir. 2004)).

         A. Calculation of Attorneys' Fees

         Under New Jersey law, a two-step approach is used to determine a reasonable dollar amount of attorneys' fees. First, the Court must determine “whether the party seeking the fee prevailed in the litigation.” Litton Indus., Inc., 982 A.2d at 386. Second, the Court must calculate the lodestar, “which is that number of hours reasonably expended by the successful party's counsel in the litigation, multiplied by a reasonable hourly rate.” Id.

         New Jersey Rule of Professional Conduct 1.5(a) provides factors to be considered in determining the reasonableness of attorneys' fees. Those factors are:

(1) the time and labor required, the novelty and difficulty of the questions involved, and the skill requisite to perform the legal service properly;
(2) the likelihood, if apparent to the client, that the acceptance of the particular employment will preclude other employment by the lawyer;
(3) the fee customarily charged in the locality for similar legal services;
(4) the amount involved and the results obtained;
(5) the time limitations imposed by the client or by the circumstances;
(6) the nature and length of the professional relationship with the client;
(7) the experience, reputation, and ability of the lawyer or lawyers performing the services;
(8) whether the fee is fixed or contingent.

Furst v. Einstein Moomjy, Inc., 860 A.2d 435, 447-48 (N.J. 2004) (quoting RPC 1.5(a)).

         Even so, “[t]he documentation offered in support of the hours charged must be of sufficient detail and probative value to enable the court to determine with a high degree of certainty that such hours were actually and reasonably expended in the prosecution of the litigation.” United Slate, Tile & Composition Roofers, Damp & Waterproof Workers Ass'n, Local 307 v. G & M Roofing & Sheet Metal Co., 732 F.2d 495, 502 n.2 (6th Cir. 1984); accord Rendine v. Pantzer, 661 A.2d 1202, 1227 (N.J. 1995). Otherwise, this Court cannot determine the appropriate amount of attorneys' fees and costs in the action.

         (1) Herdguard is a Prevailing Party

         In the present case, Herdguard is entitled to an award of attorneys' fees and costs based on the terms of the Mutual NDA as the prevailing party. The Mutual NDA provides that “[i]n the event of any legal proceeding between the parties arising out of or relating to this Agreement, the prevailing party shall be entitled to recover, in addition to any other relief awarded or granted, its costs and expenses (including reasonable attorneys' and expert witness' fees) incurred in any such proceeding.” [DE 68-14 at 2, Pg ID 859]. Thus, the Mutual NDA clearly provides that, in the event of litigation arising out of the Mutual NDA, the prevailing party is entitled to recover costs and fees.

         (2) Calculating the Lodestar

         To calculate the lodestar amount, the Court must multiply the number of compensable hours by a reasonable hourly rate. In order to do that, the Court must first determine a reasonable hourly rate. Then, the Court must determine the appropriate amount of compensable hours expended by Herdguard in this matter.

         a. Reasonable Hourly Rate

          First, the Court must determine a reasonable hourly rate for the services provided in this action. To that end, the Court must consider the factors in New Jersey Rule of Professional Conduct 1.5(a).[1]

         Initially, the Court reiterates that counsel for Herdguard reached a favorable outcome in this action, a $120, 000 award after a jury trial. This litigation included multiple depositions, dispositive motions, and a jury trial. While the primary legal claim was for breach of contract, this action involved complex consideration of multiple contractual documents, correspondence between various individuals and entities, and the application of multiple states' laws. This required a significant amount of time and labor on behalf of Herdguard's attorneys. Moreover, counsel for Herdguard litigated the matter from beginning to end, maintaining an attorney-client relationship for approximately 2.5 years. Still, there is no evidence to suggest that the client was aware of the apparent likelihood that this case would preclude counsel from employment in other cases.

         Next, the Court is instructed to consider whether the fee was fixed or contingent. In this matter, the attorneys for Herdguard agreed to work on a hybrid contingency fee agreement, which allowed for discounted hourly rates in exchange for a 25% contingency award. [See DE 126 at 9, Pg ID 1617]. As such, Herdguard discounted many of the invoices by 50-60%. [See id.]. In some cases, New Jersey law may allow for a fee enhancement if the matter was taken on a ...


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