Apollo Education Group Incorporated v. National Union Fire Insurance Group of Pittsburgh PA
Filing
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ORDER granting Defendant's 113 Motion for Attorney Fees, and that thePlaintiff shall pay, and the Defendant shall be awarded, attorneys' fees in the amount of $1,215,832.80. Signed by Judge Steven P Logan on 7/18/18. (CLB)
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IN THE UNITED STATES DISTRICT COURT
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FOR THE DISTRICT OF ARIZONA
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Apollo Education Group, Inc., an Arizona )
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corporation,
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Plaintiff,
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vs.
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National Union Fire Insurance Company )
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of Pittsburgh, PA, a Pennsylvania
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corporation,
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Defendant.
No. CV-15-CV-01948-SPL
ORDER
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Before the Court is Defendant National Union Fire Insurance Company of
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Pittsburgh, PA’s Motion for Attorneys’ Fees (the “Motion”). (Doc. 113) For the
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following reasons, the Motion will be granted.
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I.
Background
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Apollo Education Group, Inc. (“Apollo”) purchased an insurance policy from
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National Union Fire Insurance Company of Pittsburgh, PA (“National Union”). (Doc. 1
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at 2) Apollo was the defendant in a class action lawsuit, which settled for $13.125
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million in April 2014. (Doc. 1 at 5) Apollo filed a claim with National Union to fund the
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settlement, but National Union refused to fund any of the settlement amount. (Doc. 1 at
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6) Apollo then initiated this suit against National Union for wrongful and bad faith
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refusal to pay the claim related to the settlement agreement and reimbursement for the
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$13.125 million Apollo paid out of pocket. (Doc. 1 at 2) National Union successfully
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moved for summary judgment on all of Apollo’s claims, and it now moves for an award
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of attorneys’ fees. (Doc. 119 at 2)
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II.
Standard of Review
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Federal Rule of Civil Procedure 54(d)(2) provides “[a] claim for attorney’s fees
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[…] must be made by motion unless the substantive law requires those fees to be proved
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at trial as an element of damages.” Fed. R. Civ. P. 54. National Union is moving for an
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award of attorneys’ fees pursuant to Fed. R. Civ. P. 54(d)(2)(B) and A.R.S. § 12-341.01.
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There are six factors to consider in a request for such fees under A.R.S. § 12-341.01(A).
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Associated Indem. Corp. v. Warner, 694 P.2d 1181, 1184 (Ariz. 1985). These factors are:
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(1) whether the unsuccessful party’s claim was meritorious; (2) whether the litigation
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could have been avoided or settled and the successful party’s efforts were completely
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superfluous in achieving the result; (3) whether assessing fees against the unsuccessful
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party would cause extreme hardship; (4) whether the successful party prevailed with
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respect to all relief sought; (5) whether the legal question presented was novel and
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whether such a claim had previously been adjudicated in this jurisdiction; and (6)
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whether an award in the case would discourage other parties with tenable claims from
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litigating legitimate contract issues for fear of incurring liability for substantial amounts
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of attorneys’ fees.
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determinative. Wilcox v. Waldman, 744 P.2d 444, 450 (Ariz. Ct. App. 1987).
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III.
Id.
The Court must consider each factor as no one factor is
Entitlement to Attorney’s Fees
The Court finds that the Warner factors weigh in favor of awarding National
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Union attorneys’ fees.
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A.
Merit
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The Court finds that Apollo’s claims had merit because the claims centered on an
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ambiguous contractual agreement. It is first important to note that “[a]n unsuccessful
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claim is not necessarily one that lacks merit.” Biltmore Assocs., L.L.C. v. Twin City Fire
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Ins. Co., 2007 WL 496766 at *3 (D. Ariz. 2007). Apollo and National Union had a
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Consent-to-Settle provision as part of their contracts which stated that “Insurer’s consent
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[to settlements] shall not be unreasonably withheld.” (Doc. 75-3 at 14) Arizona courts
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have yet to interpret what “unreasonably” means in the present context.
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according to the Restatement (Second) of Property, Apollo must prove that National
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Union withheld its consent “as a result of unreasonable caprice, whim, or personal
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prejudice.” Restatement (Second) of Property § 15.2 Comment g (1977); Tucson Med.
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Ctr. v. Zoslow, 712 P.2d 459, 462 (Ariz. Ct. App. 1985).
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applicable standard is that an insurer is obligated to provide consent as long as the
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settlement is reasonable. The Court finds that because of the ambiguity of the provision
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in terms of the word “unreasonably” and lack of Arizona precedent on the specific issue,
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the case had merit despite the summary judgement ruling. This factor weighs against
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awarding attorneys’ fees.
However,
Apollo argues that the
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B.
Settlement Efforts
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The settlement efforts in this case present a neutral factor in determining awards of
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attorneys’ fees.
Both parties argue that the other side was unreasonable in their
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mediation efforts. Apollo acknowledges its failure to make counteroffers, but claims, and
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appears to offer no proof, that National Union promised to increase its settlement offers
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at each mediation. On the other hand, National Union argues that it should not be
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required to “bid against itself” and increase settlement offers if Apollo does not give a
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counteroffer. The records of what actually occurred at the settlement negotiations are
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sealed. The Court finds that this factor does not weigh in favor of either party because
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neither side appeared willing to work together to reach an agreed settlement.
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C.
Extreme Hardship
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The Court finds that due to the size and revenue of Apollo, the requested
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attorneys’ fees would not cause extreme hardship. “This factor asks whether assessing
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fees against an unsuccessful party would cause extreme hardship given the parties’
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relative economic positions.” Biltmore, 2007 WL 496766 at *4. It is the burden of the
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party asserting financial hardship to show prima facie evidence of financial hardship.
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Woerth v. City of Flagstaff, 808 P.2d 297, 305 (Ariz. Ct. App. 1990). National Union
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argues that paying the requested attorneys’ fees would not cause undue hardship because
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Apollo is “a global company that reported $2.1 billion in net revenue for its fiscal year
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ending August 31, 2016.” (Doc. 113 at 9) Additionally, in its Form 10-K, Apollo
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asserted that the $13.125 million settlement was an “immaterial” amount that was paid
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for without the liquidation of assets. (Doc. 113 at 9) Apollo had the burden of proving
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potential financial hardship if attorneys’ fees were awarded, but failed to do so. Not only
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did Apollo fail to present an argument regarding this factor, they also did not list this
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factor as one that favors a finding against an award of fees. Apollo did not meet its
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burden of showing extreme financial hardship. Accordingly, the Court finds that this
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factor weighs in favor of awarding attorneys’ fees to National Union.
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D.
Winning Party Prevailed
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Both parties agree that National Union successfully moved for summary
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judgement with respect to all of the relief sought by Apollo. This factor weighs in favor
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of a finding that National Union is entitled to an award of attorneys’ fees.
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E.
Novelty of the Issue
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The Court finds that because the issues presented were somewhat novel, this fifth
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factor weighs slightly against a finding that attorneys’ fees should be granted. The
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Arizona Appellate Court has found that even when the state has not determined the
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meaning of the word in question in a similar context, if other jurisdictions have done so,
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no novel question regarding the meaning of the word exists. Potter v. United States
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Specialty Ins. Co., 98 P.3d 557, 560 (Ariz. App. 2004). Arizona may not have addressed
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the word “unreasonable” in an insurance contract, but the issue has been addressed in
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other jurisdictions. See Schwartz v. Twin City Fire Ins. Co., 492 F. Supp. 2d 308, 319
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(S.D.N.Y. 2007) (finding that a court may consider the totality of the circumstances
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known to the party whose conduct they were considering in deciding whether they acted
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reasonably or in good faith). Due to the previous interpretation of the term, this Court
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finds that the meaning of the term “unreasonable” in a contract dispute is not a
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completely novel question. However, because the Arizona courts needed to establish
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what they would find to be the proper definition in this jurisdiction, the issue presented
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was still somewhat novel and weighs slightly in favor of denying the motion for
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attorneys’ fees.
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F.
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The Court finds that awarding attorneys’ fees in this case would not discourage
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future claims. Precedent already alerts parties to the risks of bringing unmeritorious
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claims. A.R.S. § 12-341.01(A) discusses the possibility of a court awarding attorneys’
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fees. That statute warns potential litigants to consider that possibility, regardless of what
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this case decides. In addition, Apollo is a large organization that has been involved in
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lawsuits in the past, and it is well aware of the risks of litigation. Accordingly, the Court
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finds that this factor is neutral in deciding whether to award attorneys’ fees.
Discourage Future Claims
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G.
Consolidation of Court Resources
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Apollo argues that the Court should deny the Motion without prejudice until the
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pending appellate case has been decided. While the District Court has discretion as to
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whether or not to award attorneys’ fees after the notice of appeal from the decision has
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been filed, ruling on motions for attorneys’ fees “will prevent hasty consideration of post-
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judgement fee motions.” Masalosalo ex rel. Masalosalo v. Stonewall Ins. Co., 718 F.2d
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955, 957 (9th Cir. 1983). The Ninth Circuit has also noted that if the District Court
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decides a fee issue “early in the course of a pending appeal on the merits, and the fee
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order is appealed, the appeals may be consolidated.” Id. Here, the Court agrees with the
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Ninth Circuit and finds that in order to promote efficiency with both time and court
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resources, the present Motion shall be granted.
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IV.
Reasonableness of Attorney’s Fees
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The Court finds that the requested fee award of $1,215,832.80 is reasonable
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because National Union (1) addressed Apollo’s concerns in response to the Motion, and
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(2) reasonably deducted the costs that Apollo found to be incompliant with Local Rule
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54.2.
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First, in order to calculate the fee award, the Court must multiply the number of
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hours reasonably expended on the litigation times a reasonable hourly rate. Blum v.
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Stenson, 465 U.S. 886, 888 (1984). Here, National Union provided documentation as to
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the hours worked on the case and the fee acquired.
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Next, National Union addressed several block billed entries by reducing its fee
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request. Block billing, entering multiple and unrelated tasks together in a single fee entry,
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is prohibited by LRCiv 54.2(e)(1)(B). This rule requires “unrelated” tasks to be on
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separate time entries, and the Court may reduce excessive fees in the event that that
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National Union has block billed. Apollo listed seven time entries in which Apollo claims
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National Union block billed. Apollo does not list a total of how many time entries they
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believe were in direct conflict of LRCiv 54.2(e) other than that the seven entries listed
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were just a “small sample” of the invalid entries. National Union gave evidence to show
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that several of the given entries were valid due to each activity being related. Without
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further evidence as to how many legitimately block billed time entries are present, the
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Court is unable to adequately determine the severity of the issue. Thus, with the evidence
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presented to the Court, it would be unjust to create a fee reduction because of the block
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billing entries.
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Further, Apollo argues several categories in which National Unions fees were
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excessive: (1) preparing for fee petition, (2) Floren deposition, (3) written discovery
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requests, (4) mediation, and (5) Expert Peter (“Thomas”) Zaccaro.
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1) Apollo discusses how the fees charged for preparing the fee petition are
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excessive, in part, because National Union requested $36,000 for more than
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70 hours of preparation for attorneys’ fees. Due to the complexity of the
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issue, the Court uses its discretion and follows the guidelines of Angel Jet
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Servs., LLC v. Giant Eagle, Inc. in finding that 77.4 hours was a reasonable
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amount of hours expended in this litigation. 2013 WL 11311729, at *9.
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2) As for claims regarding the Floren deposition, National Union has already
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withdrawn fees for travel time and decreased its requested fees where it
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charged more than the discussed $460/hour billing rate because of a
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spreadsheet error. National Union has, on its own, fixed the issues with this
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charge that Apollo addresses, so the Court finds the updated amount
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reasonable.
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3) Apollo also requests that National Union’s fees pertaining to written
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discovery requests be found unreasonable because they were “largely boiler
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plate responses.” (Doc. 119 at 16) However, Apollo does acknowledge that
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the issues addressed were complicated and time sensitive. Furthermore,
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Apollo does not state how much time courts generally find to be
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unreasonable in the past for similar jobs. Apollo therefore has not provided
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sufficient evidence towards a finding that this charge is objectively
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unreasonable.
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4) Apollo next explains that the 168 hours and $53,633.00 incurred in
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connection with the second meditation is unreasonable because it was
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largely redundant.
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mediation in which National Union’s counsel, Steptoe & Johnson LLP, was
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hired to represent National Union. It is only logical that the new firm would
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require a substantial amount of time to prepare for their first mediation with
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Apollo. Therefore, the Court finds that the costs were reasonable.
However, both sides agree that this was the first
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5) Apollo finally argues that the Court should strike all of the fees related to
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National Union’s expert Zaccaro because (i) National Union did not rely on
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his testimony during litigation, and (ii) Zaccaro is unqualified as an expert.
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The Court finds that National Union did rely on Zaccaro heavily before trial
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by repeatedly citing his reports and submitting those reports as exhibits.
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There is also a high bar to establish that an expert witness is unqualified.
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“Because there are many different kinds of experts and expertise, [the
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standards for determining if an expert is qualified] is, by necessity, a
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flexible one.” People v. Kowalski, 492 Mich. 106, 119 (2012). Apollo does
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not allege what the legal standard is to be an expert in this field. The Court
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does not find reason to rule that Zaccaro is unqualified as an expert witness.
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For the foregoing reasons, the Court finds that the amount of attorneys’ fees
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requested, $1,215,832.80, is reasonable.
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IV.
Conclusion
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While no one factor is determinative, most of the factors favor granting National
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Union’s Motion. As the Court has found, three of the six Warner factors weigh in favor
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of granting the Motion: (i) the requested fees would not cause Apollo undue hardship, (ii)
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National Union prevailed on summary judgement with respect to all relief sought, and
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(iii) the issue presented was only somewhat novel. On the other hand, only one factor
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actually weighed against awarding attorneys’ fees: the claim that Apollo brought did have
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merit. The other two factors are neutral in this analysis. Further, it conserves court
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resources to grant the Motion now, rather than dismissing the Motion until after the case
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is decided on appeal. For the foregoing reasons, the Court grants the Motion.
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Accordingly,
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IT IS ORDERED that Defendant’s Motion (Doc. 113) is granted, and that the
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Plaintiff shall pay, and the Defendant shall be awarded, attorneys’ fees in the amount of
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$1,215,832.80.
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Dated this 18th day of July, 2018.
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Honorable Steven P. Logan
United States District Judge
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