Court Awards Fees-on-Fees, But Drastically Cuts Referee's Award

On December 5, 2016, Justice Kornreich of the New York County Commercial Division issued a decision in Sina Drug Corp. v. Mohyuddin, 2016 NY Slip Op. 32392(U), awarding attorneys' fees authorized by agreement, including fees-on-fees, but drastically cutting the amount of the award recommended by a referee.

In Sina Drug Corp., the court referred to a referee the calculation of the attorneys' fees to which a litigant was entitled under the parties' settlement agreement. The court awarded fees-on-fees, a rarely-awarded category of fees, but drastically cut the amount of fees awarded, explaining:

To begin, the court finds the amount ultimately billed by Greenberg Traurig for the appeal to the First Department excessive and caps it at $80,000 (subject to further reduction, discussed below). As plaintiffs admit, they and Greenberg Traurig originally agreed that Greenberg Traurig's fee for the appeal would be capped at $80,000. Shortly before the appeal was decided and after oral argument, plaintiffs claim they orally agreed with Greenberg Traurig that, for no additional consideration, if Greenberg Traurig was successful on appeal, Greenberg Traurig would be entitled to the full amount billed (which totaled $176,753.54). As plaintiffs further admit, they did not respond in writing confirming this contingency agreement until after the Appellate Division partially decided the appeal in their favor. The Referee, without addressing these questionable circumstances, found that the agreement to pay the contingency amount of $96,753.54 ($176,753.54 - $80,000) was enforceable and should be paid for by defendants (subject to the 15% reduction, noted earlier). The court disagrees.

To say that the contingency agreement is suspect is an understatement. Plaintiffs agreed to it after all of the appellate work had been performed. There simply was no bona fide consideration for the contingency portion of the agreement. More telling, it was proposed after oral argument, when there was indication of how the Court would rule, and agreed to after the Court did rule. The only reasonable inference that may be drawn from these circumstances and Perkins' testimony is that plaintiffs were gratuitously providing Greenberg Traurig the opportunity to collect more money from defendants when they prevailed, since the agreement was signed only after it was clear that defendants, not plaintiffs, would be responsible for the firm's fees. In this court's view, no reasonable finder of fact could conclude that the contingency portion of the retainer was anything other than a scheme to inflate Greenberg Traurig's bill for the purpose of having it paid for by defendants because there was no plausible circumstance in which plaintiffs would have had to foot that bill. Without opining on the ethics of this arrangement, the contingency fee cannot be said to be reasonable. The work on appeal by Greenberg Traurig is capped at $80,000.

Next, the court takes issue with the manner in which the Referee addressed the "surplusage" in Greenberg Traurig's bills. The Referee, again without meaningful analysis, reduced the amount billed by 15%. That, in this court's view, is not nearly enough. Employing a percentage deduction in this manner would have been permissible if the issue was merely block billing. Here, however, the issue is not Greenberg Traurig's failure to document the work performed (indeed, they did so satisfactorily). Instead, the issue is that many of the tasks performed were strategically questionable and, in many instances, immoderate. These issues were raised by defendants and not substantively addressed by the Referee. The 15% reduction recommendation, thus, is vacated.

The court first addresses the two categories of work for which plaintiffs may not recover at all: (1) plaintiffs' removal of the second Nassau County Supreme Court action to federal court; and (2) the motion seeking a hear and determine reference and confidentiality order. As an initial matter, the court rejects plaintiffs' contention that the legal issues regarding removal were complex. On the contrary, federal courts consistently hold that subject matter jurisdiction based on the existence of a "federal question" does not exist merely because the parties' dispute involves a nominally "federal" issue. For these reasons, the federal magistrate judge (unsurprisingly) found there to be a lack of federal subject matter jurisdiction. . . . While the district judge dismissed the action on other grounds, what is clear is that the case never should have been removed to federal court. Indeed, removal cost an extraordinary amount of money. Greenberg Traurig billed approximately $280,0007 for removing the case and litigating the issue of whether the case should stay in federal court. In this relatively minor commercial dispute, that is an ungodly sum of money to devote to an unwarranted procedural issue. Were this court to permit the removal attorneys' fees to be recovered (which it does not), it would have, as defendants suggest, reduced that amount by 75% (i.e., to approximately $70,000). However, the fact that the case clearly did not belong in federal court along with the attendant churning, lead this court to conclude that any recovery for the federal action would be unreasonable.

Next, and perhaps even more remarkably, Greenberg Traurig billed approximately 120 hours in connection with the motion (Seq. 002) to compel a hear and determine the reference, and ran up a bill of almost $100,000 after the Appellate Division issued its decision. To be sure, some of that was due to defendants' unjustifiable obstruction with respect to the confidentially stipulation, an issue which could easily have been resolved by a telephone call to the court. Nonetheless, the bulk of that time was spent disputing the type of reference that would be ordered. In any event, there is no valid basis to inefficiently combat opposing counsel's obstructionist behavior, especially where, as here, there was a method of resolving the issues - directly contacting the court - that would have been immensely cheaper than filing a formal motion. In fact, on June 24, 2015, the issues raised on the motion were resolved in minutes on a call with the court. The court finds that the motion was unnecessary, profligate and not recoverable as a reasonable counsel fee.

Finally, the court concurs with the Referee that Greenberg Traurig's billings were unreasonably excessive, as exemplified in the preceding paragraph and in defendants' brief. Upon review of the billing records, the court finds that a 30% reduction, rather than the 15% reduction recommended by the Referee, is appropriate under these circumstances. The court does not actually take issue-with the quality of Greenberg Traurig's work or the outcome achieved, which surely is a positive one for plaintiffs. However, the court finds that the prospect of defendants paying their bill incentivized particularly aggressive litigation with no regard to efficiency.

(Internal quotations and citations omitted).

The court ordered that the final amount of fees awarded would include

the billable hours attributable to the hearing before the Referee and the instant motion. These "fees on fees" are recoverable in this instance. The First Department generally prohibits recovery of fees on fees when they are not expressly provided for by contract or statute. However, as Justice Ramos has observed, the First Department, in dicta, indicated that a contract with indemnity language substantially similar to that of the settlement agreement in this action warrants the award of fees on fees. This court agrees with Justice Ramos and the arguments made by plaintiffs that, under the indemnity provision in the contract at issue (and the way it was described by the First Department), fees on fees should be awarded.

(Internal quotations and citations omitted).